《Feltham Ohlson AR99 Residual Earnings Valuation with Risk and Stochastic Interest Rates》.pdf

Residual Earnings Valuation with Risk and Stochastic Interest Rates Author(s): Gerald A. Feltham and James A. Ohlson Reviewed work(s): Source: The Accounting Review, Vol. 74, No. 2 (Apr., 1999), pp. 165-183 Published by: American Accounting Association Stable URL: /stable/248579 . Accessed: 13/12/2011 21:46 Your use of the JSTOR archive indicates your acceptance of the Terms Conditions of Use, available at . /page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@. American Accounting Association is collaborating with JSTOR to digitize, preserve and extend access to The Accounting Review. THE ACCOUNTING REVIEW Vol. 74, No. 2 April 1999 pp. 165-183 Residual Earnings Valuation With Risk and Stochastic Interest Rates GeraldA. Feltham University of British Columbia James A. OhIson New York University ABSTRACT: This paper provides a general version of the accounting-based valuation model that equates the market value of a firms equity to book value plus the present value of expected abnormal earnings. Prior theoretical work (e.g., Ohlson 1995; Feltham and Ohlson 1995, 1996) assumes investors are risk neutral and interest rates are nonstochastic and flat. Our more general analysis rests on only two assumptions: no arbitra