Authors

• Luis A. Gil-Alana(alana@unav.es)
  School of Economics and Business Administration, University of Navarra, Spain.
• Rolando Pelaez(pelaezr@uhd.edu)
  University of Houston-Downtown, Houston, USA

Abstract
This paper employs various empirical tests in order to measure the persistence of shocks to EPS for the S&P 500 index. Within the I(0)/I(1) paradigm the empirical evidence rejects the I(1) specification, supporting instead a trend-stationary representation. When fractional orders of integration are considered, the results indicate that the series is long memory (d > 0) and mean reverting (d < 1). The responses decay slowly to zero, albeit 50 quarters after an initial shock the responses remain significantly different from zero. Likewise, the variance ratio evidence suggests that the effect of a shock persists over time spans characteristic of the business cycle.

Classification JEL:27

Number of Pages:27

Creation Date:2008-11-20

Number:null/08