An Empirical Test of the Feltham-Ohlson Valuation Model
Posted: 16 Jun 1998
Date Written: May 1996
This paper attempts to provide empirical evidence on some of the cross-sectional implications of the Feltham-Ohlson  valuation model. Overall, the evidence supports the idea that stock prices can be viewed as a combination of stock (i.e., book equity and operating assets) and flow (i.e., earnings) variables. However, (i) evidence on the role of book value of equity as articulated in the model is mixed and (ii) evidence on the positive relation between the weight on operating assets and the parameter relating operating assets to future abnormal earnings predicted by the model is weak.
JEL Classification: M41, G12
Suggested Citation: Suggested Citation