Testing the Ohlson model-fractional cointegration approach

Shih Cheng Lee, I. Ming Jiang, Yu-Hong Liu

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Ohlson (1995) model is the most pervasively and widely adopted model in the valuation models. However, we find cases where empirical research based on time-series data do not explicitly account for time-series properties of the Ohlson model. They are likely to have spurious regressions in the analytic process and affect the reliability of empirical results. The main purpose of this study is to apply unit root and cointegration test to examine time-series properties of the Ohlson model, and we further use the fractional cointegration method to test the Ohlson model and explore whether model exists the relation of long-term equilibrium. This study is based on a sample of 122 firms, which complete data are available from second quarter of 1990 to the third quarter of 2005. Empirical results show that: (1) market value and book value are nonstationary for most of the sample firms. More importantly, book value and residual income cointegrate with market value for 64.29 percent of the sample firms at the 0.05 level. (2) when we use a semiparametric frequency domain procedure of Robinson (1995), we find that the ratio of cointegration will widely elevate. It is represent that Ohlson model is still holding.

Original languageEnglish
Pages (from-to)36-44
Number of pages9
JournalInternational Research Journal of Finance and Economics
Volume55
Publication statusPublished - 2010 Nov 1

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Ohlson model
Fractional cointegration
Testing
Empirical results
Book value
Market value
Cointegration
Empirical research
Unit root tests
Cointegration test
Frequency domain
Time series data
Valuation model
Spurious regression
Residual income

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

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Testing the Ohlson model-fractional cointegration approach. / Lee, Shih Cheng; Jiang, I. Ming; Liu, Yu-Hong.

In: International Research Journal of Finance and Economics, Vol. 55, 01.11.2010, p. 36-44.

Research output: Contribution to journalArticle

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