Endogenous Parameter Time Series Estimation of the Ohlson Model: Linear and Nonlinear Analyses

Mindy Morel

Journal of Business Finance & Accounting, 2003, vol. 30, issue 9‐10, 1341-1362

Abstract: This paper tests the empirical validity of the Ohlson (1995) model on a firm‐level time series basis. The coefficients of the earnings dynamic and valuation equations are first estimated by OLS. Next, recognizing the nonlinear relationships among the parameters, each equation is estimated by nonlinear Least Squares. Lastly, the model is estimated as a restricted system by nonlinear Least Squares and nonlinear SUR. In all cases, parameters are endogenously estimated. Irrespective of the estimation method, the Ohlson model often yields inconsistent or insignificant parameter estimates. Nevertheless, point estimates of equity risk premia are similar to those obtained from alternative methodologies.

Date: 2003
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