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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/27482

Title: Accounting-based Valuation and Changing Interest Rates
Authors: Gode, Dan
Ohlson, James
Keywords: Stochastic Interest Rates
Ohlson Model
Random Walk Model of Earnings
Permanent Earnings
Issue Date: 29-Jun-2002
Series/Report no.: Dhananjay (Dan) K. Gode-05
Abstract: We generalize Ohlson's (1995) model to stochastic interest rates while making no specific assumptions about the stochastic process of interest rates. Our analysis of the case when earnings suffice for valuation yields three insights. (1) In the valuation function, the multiplier for forthcoming earnings depends on the current rate, but the multiplier for current earnings depends on the lagged rate. (2) In the residual earnings dynamic, the persistence of residual earnings increases in the current rate and decreases in the lagged rate. (3) In the earnings dynamic, the traditional random walk requires an additional term, current earnings multiplied by the percentage change in interest rates.
URI: http://hdl.handle.net/2451/27482
Appears in Collections:Accounting Working Papers

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