A regime switching Ohlson model

Arturo Leccadito and Stefania Veltri ()

Quality & Quantity: International Journal of Methodology, 2015, vol. 49, issue 5, 2015-2035

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. Copyright Springer Science+Business Media Dordrecht 2015

Keywords: Regime switching; Ohlson model; Value relevance; Time series; Accounting based valuation (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11135-014-0088-6

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