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Can A Hybrid Method Improve Equity Valuation?: An Empirical Evaluation of the Ohlson and Johannesson (2016) Model

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Can A Hybrid Method Improve Equity Valuation? An Empirical Evaluation of the Ohlson and Johannesson (2016) Model. / Gao, Zhan; Myers, James; Myers, Linda et al.

In: The Accounting Review, Vol. 94, No. 6, 01.11.2019, p. 227-252.

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Gao Z, Myers J, Myers L, Wu W-T. Can A Hybrid Method Improve Equity Valuation? An Empirical Evaluation of the Ohlson and Johannesson (2016) Model. The Accounting Review. 2019 Nov 1;94(6):227-252. Epub 2019 Mar 23. doi: 10.2308/accr-52415

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@article{10805009b55642aba83af382ec5480fc,
title = "Can A Hybrid Method Improve Equity Valuation?: An Empirical Evaluation of the Ohlson and Johannesson (2016) Model",
abstract = "This paper investigates the validity and usefulness of “hybrid” valuation models. We recast the model in Ohlson and Johannesson (2016) as a hybrid of the Dividend Discount Model and an earnings-based price multiple model, and develop a new hybrid model that generalizes the Residual Income Valuation Model. After validating the theoretical properties of these models{\textquoteright} unique parameters, we assess the usefulness of the hybrid models in two applications. In application one, we find that intrinsic values from the hybrid models are more accurate than those from common discounted models or price multiple models. These improvements are attributable to the hybrid models{\textquoteright} ability to incorporate stock price and more realistic assumptions about growth. In application two, we find that the implied cost of equity from the hybrid models better captures systematic risks and key idiosyncratic risks, and captures expected returns. These results demonstrate the validity and usefulness of hybrid valuation models.",
keywords = "equity valuation, discounted models, price multiple models, cost of equity",
author = "Zhan Gao and James Myers and Linda Myers and Wan-Ting Wu",
year = "2019",
month = nov,
day = "1",
doi = "10.2308/accr-52415",
language = "English",
volume = "94",
pages = "227--252",
journal = "The Accounting Review",
issn = "0001-4826",
publisher = "American Accounting Association",
number = "6",

}

RIS

TY - JOUR

T1 - Can A Hybrid Method Improve Equity Valuation?

T2 - An Empirical Evaluation of the Ohlson and Johannesson (2016) Model

AU - Gao, Zhan

AU - Myers, James

AU - Myers, Linda

AU - Wu, Wan-Ting

PY - 2019/11/1

Y1 - 2019/11/1

N2 - This paper investigates the validity and usefulness of “hybrid” valuation models. We recast the model in Ohlson and Johannesson (2016) as a hybrid of the Dividend Discount Model and an earnings-based price multiple model, and develop a new hybrid model that generalizes the Residual Income Valuation Model. After validating the theoretical properties of these models’ unique parameters, we assess the usefulness of the hybrid models in two applications. In application one, we find that intrinsic values from the hybrid models are more accurate than those from common discounted models or price multiple models. These improvements are attributable to the hybrid models’ ability to incorporate stock price and more realistic assumptions about growth. In application two, we find that the implied cost of equity from the hybrid models better captures systematic risks and key idiosyncratic risks, and captures expected returns. These results demonstrate the validity and usefulness of hybrid valuation models.

AB - This paper investigates the validity and usefulness of “hybrid” valuation models. We recast the model in Ohlson and Johannesson (2016) as a hybrid of the Dividend Discount Model and an earnings-based price multiple model, and develop a new hybrid model that generalizes the Residual Income Valuation Model. After validating the theoretical properties of these models’ unique parameters, we assess the usefulness of the hybrid models in two applications. In application one, we find that intrinsic values from the hybrid models are more accurate than those from common discounted models or price multiple models. These improvements are attributable to the hybrid models’ ability to incorporate stock price and more realistic assumptions about growth. In application two, we find that the implied cost of equity from the hybrid models better captures systematic risks and key idiosyncratic risks, and captures expected returns. These results demonstrate the validity and usefulness of hybrid valuation models.

KW - equity valuation

KW - discounted models

KW - price multiple models

KW - cost of equity

U2 - 10.2308/accr-52415

DO - 10.2308/accr-52415

M3 - Journal article

VL - 94

SP - 227

EP - 252

JO - The Accounting Review

JF - The Accounting Review

SN - 0001-4826

IS - 6

ER -