Valuation, Linear Information Dynamic, and Stochastic Discount Rates

21 Pages Posted: 8 Oct 2008

See all articles by Dan Gode

Dan Gode

affiliation not provided to SSRN

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: March 2000

Abstract

We generalize Ohlson (1995) to stochastic interest rates. Our analysis provides four insights. First, the earnings capitalization multiple depends on the lagged rate, not the current rate. Second, the abnormal earnings persistence parameter increases in the current rate and decreases in the lagged rate. Third, it is not necessary to specify the stochastic process underlying interest rates to relate stock prices and accounting numbers. Finally, only the lagged rate is needed to capitalize current earnings to determine current stock price, while both the lagged and current rates are needed to forecast next-period earnings based on current earnings

Suggested Citation

Gode, Dan and Ohlson, James A., Valuation, Linear Information Dynamic, and Stochastic Discount Rates (March 2000). NYU Working Paper No. DHANANJAY (DAN) K. GODE-04. Available at SSRN: https://ssrn.com/abstract=1280702

Dan Gode (Contact Author)

affiliation not provided to SSRN

No Address Available

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

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