Is the Ohlson (1995) Model an Example of the Simpson's Paradox?

Abstract:     
The Ohlson (1995) equity valuation and returns models are consistent with mathematical formulation. Since value relevance models that relate Ohlson (1995) focus on information dynamics of accounting and other information for explaining equity value, an inconsistency between Ohlson’s (1995) simplified model for valuation and re-formulation of returns related model is observed where one model makes the other incomplete for information dynamics of variables in models, though mathematical formulations confirm the relationship of those models. Hence, the information dynamics of these mathematically formulated models makes questioning whether Ohlson’s (1995) explanation is an example of the "Simpson’s paradox".

Number of Pages in PDF File: 10

Keywords: value relevance, information dynamics, Simpson’s paradox, accounting, earnings, equity price

JEL Classification: C10, C13, C19, C30, C31, C32, G12, M41

working papers series