On the revaluation of arbitraged assets and the inflation accounting debate: Error correction estimates and forecasts

Butler, David, Ezzamel, Mahmoud ORCID: https://orcid.org/0000-0002-3673-8440 and Forbes, William 2001. On the revaluation of arbitraged assets and the inflation accounting debate: Error correction estimates and forecasts. Advances in Quantitative Analysis of Finance and Accounting 9 , pp. 127-158.

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Abstract

This paper recasts an old debate in accounting, that of the appropriate means of revaluing assets in place, within a new theoretical and empirical framework. The new theoretical framework is to regard the current movement of current cost accounting indices as reflecting inter-industry arbitrage of both assets in place and investment. This new perspective results in a new empirical development which draws upon recent advances in time-series econometrics, namely, error correction representations of the trajectory of related time-series. We construct error correction representations of both the current-cost and the current purchasing power method of valuing assets in place and compare them according to their ability to forecast the future value of assets in place. The results suggest that the time path of specific price indices has a parsimonious error-correction representation involving other related price indices. The bivariate and multivariate tests of forecasting accuracy we conducted show that the error correction model clearly outperforms the random walk benchmark model.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HA Statistics H Social Sciences > HF Commerce > HF5601 Accounting H Social Sciences > HG Finance
Related URLs:	http://papers.ssrn.com/sol3/papers.cfm?a...
Last Modified:	24 Oct 2022 10:05
URI:	https://orca.cardiff.ac.uk/id/eprint/43093

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