Securities and Investment Analysis
2.2 Session 3: Financial Statement Information and Stock Prices: The Empirical Evidence (1 hour session + 1 hour session)
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Earnings processes.
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Early studies of earnings and stock prices.
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Earning anomalies.
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Effect of widening the investment horizon.
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Evidence on the processes followed by earnings can be found in:
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Some Time Series Properties of Accounting Income [Ball and Watts (1972)], and
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Quarterly Accounting Data: Time-Series Properties and Predictive Ability Results [Foster (1977)]
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Evidence on the association between earnings and stock prices can be found in An Empirical Evaluation of Accounting Income Numbers [Ball and Brown (1968)] which is mandatory reading
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A rational explanation for the postannouncement drift can be found in Postannouncement Drift in Rational Expectation Models [Dontoh, Ronen, and Sarath (1995)]
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Evidence on earnings anomalies is reported in On the Usefulness of Earnings and Earnings Research: Lessons and Directions from two Decades of Empirical Research [Lev (1989)] which is mandatory reading.
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The effect of widening the investment horizon is reported in:
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Aggregate Accounting Earnings can Explain Most of Security Returns: The Case of Long Return Intervals [Easton, Harris, and Ohlson (1992)] and
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Information in Prices about Future Earnings: Implications for Earnings Response Coefficients [Kothari and Sloan (1992)]
2.3 Session 4: Securities Valuation in the Ohlson Framework (1 hour session + 1 hour session)
Introduction to Ohlson's framework, Earnings, Book Values, and Dividends in Security Valuation [Ohlson (1995)] constitutes a good introduction to Ohlson's valuation framework and is mandatory reading.
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Some of the limitations of Ohlson's model can be derived from reading Tobin's q Ratio and Industrial Organization [Lindenberg and Ross (1981)].
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A more realistic and sophisticated model can be found in Valuation and Clean Surplus Accounting for Operating and Financial Activities [Feltham and Ohlson (1995)]
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Implications for empiricists are provided in The Feltham-Ohlson Framework: Implications for Empiricists [Bernard (1995)].
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Comparing the Accuracy and Explainability of Dividend, Free Cash Flow, and Abnormal Earnings Equity Valuation Models [Francis, Olsson, and Oswald (1997)] provides evidence on the usefulness of the main securities valuation models introduced in this course.
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