A regime switching Ohlson model

A regime switching Ohlson model 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Quality & Quantity Springer Journals

A regime switching Ohlson model

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Publisher
Springer Journals
Copyright
Copyright © 2014 by Springer Science+Business Media Dordrecht
Subject
Social Sciences, general; Methodology of the Social Sciences; Social Sciences, general
ISSN
0033-5177
eISSN
1573-7845
D.O.I.
10.1007/s11135-014-0088-6
Publisher site
See Article on Publisher Site

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.

Journal

Quality & QuantitySpringer Journals

Published: Aug 19, 2014

References

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