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The speed of adjustment of financial ratios: A hierarchical Bayesian approach using mixtures
Author(s) -
Gargallo Pilar,
Salvador Manuel,
Gallizo José Luis
Publication year - 2007
Publication title -
applied stochastic models in business and industry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.413
H-Index - 40
eISSN - 1526-4025
pISSN - 1524-1904
DOI - 10.1002/asmb.698
Subject(s) - bayesian probability , econometrics , financial ratio , sample (material) , computer science , bayesian hierarchical modeling , set (abstract data type) , economics , bayesian inference , mathematics , statistics , finance , chemistry , chromatography , programming language
This paper presents a hierarchical Bayesian analysis of the partial adjustment model of financial ratios using mixture models, an approach that allows us to estimate the distribution of the adjustment coefficients. More particularly, it enables us to analyse speed of reaction in the presence of shocks affecting financial ratios objectives as a basis to establish homogenous groups of firms. The proposed methodology is illustrated by examining a set of ratios for a sample of firms operating in the U.S. manufacturing sector. Copyright © 2007 John Wiley & Sons, Ltd.