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Research on Generalized Residual Income Valuation Based on Vector AR(p)

Jiwen Song

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Abstract

Based on the autoregressive process of order p,we develop a new model which extends the Residual Income Valuation Model.Besides,we deduce the Earnings Response Coefficient(ERC)equation using the new model.In addition,we test the new model using an example and find that Faltham and Ohlson(1995)model can be easily applied to AR(2)process and more historical information is useful in valuation under our new model.

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What this paper is about

Based on the autoregressive process of order p,we develop a new model which extends the Residual Income Valuation Model.Besides,we deduce the Earnings Response Coefficient(ERC)equation using the new model.In addition,we test the new model using an example and find that Faltham and Ohlson(1995)model can be easily applied to AR(2)process and more historical information is useful in valuation under our new model.

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Available abstract

Based on the autoregressive process of order p,we develop a new model which extends the Residual Income Valuation Model.Besides,we deduce the Earnings Response Coefficient(ERC)equation using the new model.In addition,we test the new model using an example and find that Faltham and Ohlson(1995)model can be easily applied to AR(2)process and more historical information is useful in valuation under our new model.

Key concepts: Residual income valuation, Autoregressive model, Residual, Valuation (finance), Passive income, Econometrics, Earnings, Economics

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