Forecasting profitability and earnings: a study of the UK market (1982-2000)
Routledge, Taylor and Francis Group
Business and Public Management
Accounting, Finance and Business Economics
An approach recently developed by Fama and French (2000) is applied to the study of whether UK company proﬁtability is mean-reverting. A sample of roughly 987 ﬁrms per year for a period from 1982–2000 is used, drawn from Datastream. In a simple partial adjustment model convergence towards the mean at a rate of about 25% per year is found. The results are very similar in direction to those of Fama and French (2000) but the results do not display signiﬁcant non-linearities. The change in proﬁtability appears to be more strongly inﬂuenced by dividends in the UK.