Existing empirical evidence suggests that residual income valuation models based on historical cost accounting considerably underestimate equity values. One possible explanation is the use of historical cost accounting under inflationary conditions. In this paper, we use a residual income...

The complexity involved in the pricing of American style basket options requires careful consideration of both computational efficiency and accuracy. The conventional assumption of lognormal distribution for the value of a basket is the key for the trade-off. This paper examines the mispricing...

In this paper we address three issues in accounting-based equity valuation: (i) How are valuation parameters related to earnings persistence and accounting conservatism when earnings components aggregate, or add up, in valuation? (ii) What does aggregation of earnings components in valuation...

In this paper we develop a general framework for evaluating the impact of conservative accounting on the structure of residual income models of equity valuation. This affords a theoretical understanding of the signs and sizes of the valuation weights observed in regression studies of the...

This paper discusses equity valuation on a per share basis and in a stochastic term structure of discount factors framework. The value of equity has been explicitly expressed in a no-growth component, which is proxied by either capitalised next period earnings or open book value, and growth...

This paper models the effect of transaction costs and taxes on asset pricing in a multi-period setting. It extends the study by Dermody and Rockafellar (DR)(1991), where it was shown that term structure valuation is agent-specific owing to agents' different tax classes, and that a multiplicity...

Existing empirical evidence suggests that residual income valuation models based on historical cost accounting considerably underestimate equity values. One possible explanation is the use of historical cost accounting under inflationary conditions. In this paper, we use a residual income...