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A regime switching Ohlson model

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  • Arturo Leccadito
  • Stefania Veltri

Abstract

This paper proposes a regime-switching version of the Ohlson model (Contemp Account Res 11:661–687, 1995 ). We assume that abnormal earnings and the other information variable follow a regime-switching dynamics, which represents a simple yet rigorous way to incorporate the stochastic volatility pattern revealed by financial variables. We derive closed form formulae for market values of equity and show that the resulting model is still tractable. In our empirical investigation we consider firms from the USA stock market during the period 1980–2011 and find that the regime-switching model improves upon the traditional Ohlson model in predicting market prices. Copyright Springer Science+Business Media Dordrecht 2015

Suggested Citation

  • Arturo Leccadito & Stefania Veltri, 2015. "A regime switching Ohlson model," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(5), pages 2015-2035, September.
    • Handle: RePEc:spr:qualqt:v:49:y:2015:i:5:p:2015-2035
    DOI: 10.1007/s11135-014-0088-6
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    2. I-Cheng Yeh & Che-hui Lien, 2017. "Growth and value hybrid valuation model based on mean reversion," Applied Economics, Taylor & Francis Journals, vol. 49(50), pages 5092-5116, October.

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