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Price and return models

Year: 1995
Type: article
Abstract: Return models (returns regressed on scaled earnings variables) are commonly preferred to price models (stock price regressed on earnings per share). We provide a framework for choosing between these models. An economically intuitive rationale suggests that price models are better specified in that the estimated slope coefficients from price models, but not return models, are unbiased. Our empirical results confirm that price models' earnings response coefficients are less biased. However, return models have less serious econometric problems than price models. In some research contexts the combined use of both price and return models may be useful.
DOI: 10.1016/0165-4101(95)00399-4
Language: English
Subfield: Finance
Open Access status: hybrid
Estimated APC paid: $4,170
Funders: City University of New York, University of Pennsylvania, State University of New York, Michigan State University, University of Rochester, University of Glasgow, College of Engineering, Michigan State University
OpenAlex ID: W1978206521
FWCI: 14.31
Cites: 70
Cited by: 693
Related to: 10