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| Author: | McCrae, M. Nilsson, H. |
| Title: | The explanatory and predictive power of different specifications of the Ohison (1995) valuation models |
| Journal: | European Accounting Review
2001 : VOL. 10:2, p. 315-342 |
| Index terms: | ACCOUNTING VALUATION MODELS MODEL TESTING |
| Language: | eng |
| Abstract: | The study compares the explanatory and predictive power of Ohison's (1995) residual income model (RIV) with a linear information dynamics version (LIM) that specifies both residual income and non-accounting information as autoregressive processes. Both versions are applied with, and without, future performance expectations from non- accounting sources (analysts' forecasts). As with US evidence, the authors find that the inclusion of analysts' forecasts improves both (i) cross-sectional correlations with current prices for both RIV and LIM models and (ii) the predictive power of RIV models in relation to future annual cross-sectional stock returns. The contribution of linear information dynamics is significant but varies across approaches. |
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