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Endogenous Parameter Time Series Estimation of the Ohlson Model: Linear and Nonlinear Analyses

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  • Mindy Morel

Abstract

This paper tests the empirical validity of the Ohlson (1995) model on a firm‐level time series basis. The coefficients of the earnings dynamic and valuation equations are first estimated by OLS. Next, recognizing the nonlinear relationships among the parameters, each equation is estimated by nonlinear Least Squares. Lastly, the model is estimated as a restricted system by nonlinear Least Squares and nonlinear SUR. In all cases, parameters are endogenously estimated. Irrespective of the estimation method, the Ohlson model often yields inconsistent or insignificant parameter estimates. Nevertheless, point estimates of equity risk premia are similar to those obtained from alternative methodologies.

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  • Mindy Morel, 2003. "Endogenous Parameter Time Series Estimation of the Ohlson Model: Linear and Nonlinear Analyses," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(9‐10), pages 1341-1362, December.
    • Handle: RePEc:bla:jbfnac:v:30:y:2003:i:9-10:p:1341-1362
    DOI: 10.1111/j.0306-686X.2003.05444.x
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    Cited by:

    1. Gordon Richardson & Surjit Tinaikar, 2004. "Accounting based valuation models: what have we learned?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 44(2), pages 223-255, July.
    2. Jenni L. Bettman, 2007. "Australian Evidence Regarding the Value-Relevance of Technical Information," Australian Journal of Management, Australian School of Business, vol. 32(1), pages 57-71, June.
    3. Jenni L. Bettman & Stephen J. Sault & Emma L. Schultz, 2009. "Fundamental and technical analysis: substitutes or complements?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(1), pages 21-36, March.
    4. Atoche, Teresa duarte & Pérez lópez, José ángel & Camúñez ruiz, Jose antonio, 2012. "La relevancia de los gastos de I+D. Estudio empírico en el sector del automóvil," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 15(2), pages 257-286.
    5. Heinrichs, Nicolas & Hess, Dieter & Homburg, Carsten & Lorenz, Michael & Sievers, Soenke, 2011. "Extended dividend, cash flow and residual income valuation models: Accounting for deviations from ideal conditions," CFR Working Papers 11-11, University of Cologne, Centre for Financial Research (CFR).
    6. Shih-Cheng Lee & Chien-Ting Lin & Min-Teh Yu, 2013. "A fractional cointegration approach to testing the Ohlson accounting based valuation model," Review of Quantitative Finance and Accounting, Springer, vol. 41(3), pages 535-547, October.
    7. Dahmash, Firas N. & Durand, Robert B. & Watson, John, 2009. "The value relevance and reliability of reported goodwill and identifiable intangible assets," The British Accounting Review, Elsevier, vol. 41(2), pages 120-137.
    8. Kuo, Chen-Yin, 2016. "Does the vector error correction model perform better than others in forecasting stock price? An application of residual income valuation theory," Economic Modelling, Elsevier, vol. 52(PB), pages 772-789.
    9. Huong Higgins, 2011. "Forecasting stock price with the residual income model," Review of Quantitative Finance and Accounting, Springer, vol. 36(4), pages 583-604, May.
    10. Chen-Yin Kuo, 2017. "Is the accuracy of stock value forecasting relevant to industry factors or firm-specific factors? An empirical study of the Ohlson model," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 195-225, July.
    11. Duarte Atoche Teresa & Pérez López José Ángel & Camúñez Ruíz José Antonio, 2012. "Información sobre I+D y valoración de empresas," Contaduría y Administración, Accounting and Management, vol. 57(4), pages 107-136, octubre-d.
    12. Arturo Leccadito & Stefania Veltri, 2015. "A regime switching Ohlson model," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(5), pages 2015-2035, September.
    13. Hemantha S. B. Herath & A. William Richardson & Raafat R. Roubi & Mark Tippett, 2015. "Non-linear Equity Valuation: An Empirical Analysis," Abacus, Accounting Foundation, University of Sydney, vol. 51(1), pages 86-115, March.

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