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Ohlson Model Testability:Empirical Tests Findings

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Author Info

  • César Medeiros Cupertino

    (Brasília University)

  • Paulo Roberto Barbosa Lustosa

    (Brasília University)

Abstract

This paper analyses the empirical testability of Ohlson Model (OM). Themethodology used comprises: (i) exploratory research with regards to the studyobjective; (ii) bibliography research with regards to the applicable procedures; and(iii) qualitative research with regards to problem approach. Literature research hascomprised both origin (dividend discount, assessment of residual income etc) and themodel subjacent theory. The linear information dynamics (LID) and the assessmentformulae were discussed concerning the model internal consistency, as well as theestablishment of the required inputs (parameters and variables). Empirical studieshave been analyzed both in terms of their structuring and their achieved results. Thestudy has concluded that: (1) no consensus has yet been achieved over theappropriate way to measure the parameters of persistency; (2) doubts as to theappropriate way of capturing the parameters w and g , and the variable n preventsverification of the effective explanatory capabilities of the Ohlson Model; (3) empiricaltestability is limited to absences of consistent proxies that may capture persistencyand previsibility of the institution’s future income.

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Bibliographic Info

Article provided by Fucape Business School in its journal Brazilian Business Review.

Volume (Year): 1 (2004)
Issue (Month): 2 (June)
Pages: 136-150

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Handle: RePEc:bbz:fcpbbr:v:1:y:2004:i:2:p:136-150

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Related research

Keywords: Valuation; Ohlson Model; empirical testing;

References

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  1. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
  2. Kaplan, Steven N & Ruback, Richard S, 1995. " The Valuation of Cash Flow Forecasts: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 50(4), pages 1059-93, September.
  3. Beaver, William H., 1999. "Comments on 'An empirical assessment of the residual income valuation model'," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 35-42, January.
  4. Kothari, S. P. & Zimmerman, Jerold L., 1995. "Price and return models," Journal of Accounting and Economics, Elsevier, vol. 20(2), pages 155-192, September.
  5. Frankel, Richard & Lee, Charles M. C., 1998. "Accounting valuation, market expectation, and cross-sectional stock returns," Journal of Accounting and Economics, Elsevier, vol. 25(3), pages 283-319, June.
  6. Dechow, Patricia M. & Hutton, Amy P. & Sloan, Richard G., 1999. "An empirical assessment of the residual income valuation model1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 1-34, January.
  7. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
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Citations

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Cited by:
  1. Duran-Vazquez, Rocio & Lorenzo-Valdes, Arturo & Ruiz-Porras, Antonio, 2011. "Valuation of Latin-American stock prices with alternative versions of the Ohlson model: An investigation of cointegration relationships with time-series and panel-data," MPRA Paper 32043, University Library of Munich, Germany.
  2. Duran-Vazquez, Rocio & Lorenzo-Valdes, Arturo & Ruiz-Porras, Antonio, 2011. "Valuación de acciones mexicanas mediante los modelos de Ohlson y Ohlson-Beta para firmas con ciclos de corto y largo plazos: Un análisis de cointegración
    [Valuation of Mexican stocks with the Ol
    ," MPRA Paper 33054, University Library of Munich, Germany.

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