Cointegration Analysis among the Variables of the Ohlson Model for Brazilian Companies

Julio Pereira de Araujo and Marcos Roberto Gois de Oliveira Macedo

Applied Finance and Accounting, 2018, vol. 4, issue 1, 122-145

Abstract: We examine whether there is a long-term equilibrium relation between the companies market value and the variables accounting book value and abnormal earnings based on the Ohlson model (1995) using a cointegration approach. Our panel cointegration analysis indicates that the variables cointegrate when using the whole sample, the most liquid companies group and for all sectors in at least one of the tests performed with exception of the Telecommunications sector, which presented no cointegration in both tests. The time series cointegration results have shown that, except for one company, for all the remaining the variables cointegrated. Therefore, the Ohlson Model (1995) is relevant for the evaluation of Brazilian listed companies in a long-term equilibrium. In addition, we provide evidence that abnormal earnings have limited explanatory power compared to book value.

Keywords: Ohlson model; panel cointegration; time series cointegration (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:rfa:afajnl:v:4:y:2018:i:1:p:122-145

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