Tests of the Ohlson Model in Thailand: A Fractional Cointegration Approach

14 Pages Posted: 8 Feb 2017

See all articles by Suthawan Prukumpai

Suthawan Prukumpai

Kasetsart University - Department of Accounting, Faculty of Business Administration

Yuthana Sethapramote

National Institute of Development Administration, School of Development Economics

Date Written: February 8, 2017

Abstract

This paper checks for validity of the residual income model of Ohlson (1995) for the companies listed on the Stock Exchange of Thailand between 1992 and 2015. In particular, we test whether there is long-run relationship between market value, book value and residual incomes. Using standard cointegration, we find that on 30.61 percent of the sample firms have long-run relationship. Nevertheless, once fractional cointegration is applied, the evidence of long-run relationship increases to 79.59 percent of the sample firms. Therefore, our results support the Ohlson model in which book value and residual income could be used as the long-term fundamental variables that determined the equity market value. However, both book values and residual incomes are highly persistent and hence the adjustment process toward the long-run equilibrium is very slow.

Keywords: Residual income, The Ohlson model, Fractional cointegration, Stock Exchange of Thailand

JEL Classification: C58, G12, M41

Suggested Citation

Prukumpai, Suthawan and Sethapramote, Yuthana, Tests of the Ohlson Model in Thailand: A Fractional Cointegration Approach (February 8, 2017). Available at SSRN: https://ssrn.com/abstract=2913467 or http://dx.doi.org/10.2139/ssrn.2913467

Suthawan Prukumpai (Contact Author)

Kasetsart University - Department of Accounting, Faculty of Business Administration ( email )

Thailand

Yuthana Sethapramote

National Institute of Development Administration, School of Development Economics ( email )

118 Seri Thai Road
Bangkok, 10240
Thailand

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