Asymmetric mean reversion in corporate profits

Abstract

This article applies the Enders and Granger (1998) unit root test against the stationary alternative with asymmetric adjustment to after-tax corporate profits. Both the standard Dickey–Fuller (1981) model and the momentum threshold autoregressive (MTAR) model reject the null hypothesis of a unit root; however, asymmetric mean reversion is found with the MTAR model. The findings are consistent with economic theories of entry and exit and traditional competitive macroeconomic models.

Notes

¹ See Granger and Terasvirta (1993) for a general reference on nonlinear econometrics.