Stationarity and cointergration tests of the Ohlson model

Stationarity and cointergration tests of the Ohlson model

This paper investigates the time-series properties of the Ohlson (1995) model and examines their implications for empirical studies that use time-series data but do not explicitly account for such properties. It is shown that the null hypothesis that market value and book value are nonstationary can...

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Bibliographic Details
Published in:Journal of accounting, auditing & finance Vol. 15; no. 2; p. 141
Main Authors: Qi, Daqing D, Y Woody Wu, Xiang, Bing
Format: Journal Article
Language:English
Published: Boston Warren Gorham Lamont 01-04-2000
Subjects:
Book value
Cointegration analysis
Market value
Regression analysis
Studies
Time series
United States > US
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Summary:This paper investigates the time-series properties of the Ohlson (1995) model and examines their implications for empirical studies that use time-series data but do not explicitly account for such properties. It is shown that the null hypothesis that market value and book value are nonstationary cannot be rejected for most of the sample firms. More importantly, book value and residual income do not cointegrate with market value for 80% of the sample firms. The importance and relevance of the time-series properties of the model to OLS regression is demonstrated by showing that the OLD out-of-sample forecasts of market value are significantly more accurate and less biased for the cointegrated firms than for the non-cointegrated firms.
ISSN:0148-558X
2160-4061