Abstract
The dynamic structure of profit rates for 156 US manufacturing companies is analysed by means of fractional integration techniques as an alternative to the commonly used ARIMA models with respect to the ‘persistence of profits’. Thereby the pseudo-spectral density aproach of Velasco and Robinson together with model selection criteria is applied. The results show–despite the short lengths of the series and tests for the integer degrees of integration (d = 0, 1)–that 35.5% of the series may be well-approximated by long-range dependent processes, and 54% are nonstationary. This is a confirmation of the strong challenge to the competitive environment hypothesis obtained by previous studies.
Acknowledgment
The authors would like to thank Jesus Crespo Cuaresma for his valuable remarks.
Notes
1 The economy wide measure is the median of the profit of a sample consisting of more than 175 000 observations and more than 15 500 US manufacturing companies.