The information content of earnings and prices: A simultaneous equations approach

Abstract

The price-earnings relation can be characterized as a system of simultaneous equations. Earnings and prices can behave as if they are both endogenously determined because they are jointly affected by information that is difficult to specify explicitly. Specification tests provide evidence that both earnings changes and price changes are endogenous. The price and earnings coefficients increase from OLS to joint estimation and, under a restrictive set of assumptions, provide increasingly similar estimates of the permanent component of earnings. The evidence is consistent with the contention that a portion of the single-equation bias can be mitigated via joint estimation.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 112 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.