Tests of the Ohlson Model in Thailand: A Fractional Cointegration Approach

Abstract

This paper checks for validity of the residual income model of Ohlson (1995) for the companies listed on the Stock Exchange of Thailand between 1992 and 2015. In particular, we test whether there is long-run relationship between market value, book value and residual incomes. Using standard cointegration, we find that on 30.61 percent of the sample firms have long-run relationship. Nevertheless, once fractional cointegration is applied, the evidence of long-run relationship increases to 79.59 percent of the sample firms. Therefore, our results support the Ohlson model in which book value and residual income could be used as the long-term fundamental variables that determined the equity market value. However, both book values and residual incomes are highly persistent and hence the adjustment process toward the long-run equilibrium is very slow.