This paper articulates the links between relevance of an earnings component in forecasting (abnormal) earnings and its relevance in valuation in a nonlinear framework. The analysis shows that forecasting relevance does not imply valuation relevance even though valuation irrelevance is implied by...

This paper compares and contrasts two accounting information systems, the aggregate earnings system and the disaggregated cash flow/accrual system, examining their relative performance in stock valuation and in forecasting of earnings. It finds, in general, that the forecasts of earnings and...

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...

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...

A model is derived which considers the interactions of corporation tax, advance corporation tax (ACT) and capital gains tax and their impact on UK corporate behaviour. It is shown that the recent changes to the ACT system, in the form of the Foreign Income Dividend (FID) scheme, will increase...