Valuation of Latin-American stock prices with alternative versions of the Ohlson model: An investigation of cointegration relationships with time-series and panel-data

Duran-Vazquez, Rocio; Lorenzo-Valdes, Arturo and Ruiz-Porras, Antonio (2011): Valuation of Latin-American stock prices with alternative versions of the Ohlson model: An investigation of cointegration relationships with time-series and panel-data. Forthcoming in: Espinosa-Ramirez, R. (coord.), "Topics on International Economic Relations", Universidad de Guadalajara, México

Abstract

We develop an investigation regarding the determinants of the stock prices in six Latin American emerging markets (Argentina, Brazil, Chile, Colombia, Mexico and Peru). We test the traditional Ohlson model and an international version of it. The international model includes the Dow Jones index as an additional explanatory variable. We use time-series and panel-data cointegration methodologies to assess the long-run relationships among the variables postulated by both models. We use quarterly data for the period 2000:01-2010:03. The results suggest that panel-data techniques may be better than time-series ones for the assessments. They support the use of the Ohlson models and, specially, the international one. The variables are significant and have the postulated signs. These results hold when the firms are considered as a whole and for the commercial and construction firms. Furthermore, the results also suggest that the Latin American asset prices are complementary to the US ones in the long run.

• Item Type: MPRA Paper
• Language: English
• Keywords: Ohlson Model; Latin America; Cointegration
• Subjects: C - Mathematical and Quantitative Methods > C3 - Econometric Methods: Multiple; Simultaneous Equation Models; Multiple Variables; Endogenous Regressors > C32 - Time-Series Models; Dynamic Quantile Regressions; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates; C - Mathematical and Quantitative Methods > C3 - Econometric Methods: Multiple; Simultaneous Equation Models; Multiple Variables; Endogenous Regressors > C33 - Models with Panel Data; M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M40 - General

References

Asmy, P., et. al (2009), “Effects of macroeconomic variables on stock prices in Malaysia: An approach of error correction model”, Munich, University of Munich, Munich Personal REPEC Archive, MPRA Paper 20970

Chen, N., R. Roll, and S. Ross, (1986), “Economic forces and the stock markets”, Journal of Business, 59(3), 383-403

Collins, D.W., E.L. Maydew, and I.S. Weiss, (1997), “Changes in the value-relevance of earnings and book values over the past forty years”, Journal of Accounting and Economics, 24(1), 39-67

Collins, D. W., M. Pincus, and H. Xie, (1999). “Equity valuation and negative earnings: The role of book value of equity”, The Accounting Review, 74(1), 29-61

Dechow, P.M., A.P. Hutton and R.G. Sloan, (1999), “An empirical assessment of the Residual Income Valuation model”, Journal of Accounting and Economics, 26(1), 1-34

Durán-Vázquez, R., A. Lorenzo-Valdés and H. Valencia-Herrera, (2007), “Value relevance of the Ohlson model with Mexican data”, Contaduría y Administración, (223), 33-52

Frankel, R., and C.M.C. Lee, (1998), “Accounting valuation, market expectations and cross-sectional stock returns”, Journal of Accounting Economics, 25(3), 283-319 jun

Fukui, Y., (2002), “More stylized facts before theorizing: Toward a data acceptable Ohlson Model”, Aoyama, Aoyama Gaukin University, Social Science Research Network, SSRN Working Paper 289039

Gujarati, D.N, (2003), Basic Econometrics, Fourth edition, United States, New York, McGraw-Hill

Harvey, C. R., (1995), “The risk exposure of emerging equity markets”, The World Bank Research Observer, 9(1), 19-50

Hjalmarsson E. and P. Österholm, (2007), “Testing for cointegration using the Johansen methodology when variables are near-integrated”, Washington, International Monetary Fund, Western Hemisphere Division, IMF Working Paper WP/07/141

Hordahl, P. and F. Packer, (2007), “Understanding asset prices: An overview”, Basle, Bank for International Settlements, Monetary and Economic Department, BIS Paper 34

Khodadadi, V., and M.R. Emami, (2009), “Using panel data analysis methods in Ohlson (1995) model to predicting abnormal earnings”, International Bulletin of Business Administration, 6, 40-49

Kwon, C.S. and T.S. Shin, (1999), “Cointegration and causality between macroeconomic variables and stock market returns”, Global Finance Journal, 10(1), 71-81

Lo, K. and T. Lys, (2000) “The Ohlson model: Contribution to valuation theory, limitations and empirical applications”, Journal of Accounting, Auditing and Finance, 15(3), 337-367

Lopes, A.B., (2002), “The value relevance of Brazilian accounting numbers: An empirical investigation”, Sao Paulo, University of Sao Paulo, Social Science Research Network, SSRN Working Paper 311459

Lorenzo-Valdés, A., and R. Durán-Vázquez, (2010), “Ohlson model by panel cointegration with Mexican data”, Contaduría y Administración, (232), 131-142

Maddala, G. S. and S. Wu, (1999), “A comparative study of unit root tests with panel data and a new simple test”, Oxford Bulletin of Economics and Statistics, 61(Special issue), 631–652

Maysami, R.C., L.C. Howe and M.A. Hamzah, (2004), “Relationship between macroeconomic variables and stock market indices: Cointegration evidence from stock exchange of Singapore’s All-S sector indices”, Jurnal Pengusuran, 24(1), 47-77

McCrae, M.S., and H. Nilsson, (2001), “The explanatory and predictive power of different specifications of the Ohlson (1995) valuation models”, European Accounting Review, 10(2), 315-341

Medeiros-Cupertino, C., and P.R. Barbosa-Lustosa, (2004), “Ohlson model testability: Empirical test findings”, Brazilian Business Review, 1(2), 136-150

Ohlson, J. A. (1995), “Earnings, books values and dividends in equity valuation”, Contemporary Accounting Research, 11(2), 661-687

Ota, K. (2002). “A test of the Ohlson model: Empirical evidence from Japan”. International Journal of Accounting, 37(2), 157-182.

Shi, WK., (2010), Three Essays of Firm’s Fundamentals and Asset Pricing, United States, New Jersey, The State University of New Jersey, PhD Thesis

Varian, H.R, (2006), Intermediate Microeconomics, A Modern Approach, Seventh edition, United States, New York, W.W Norton