Ohlson is a big name in capital market research in Accounting. He has conducted various studies in this field and developed a capital market research model in 1995. His popular model has been tested, discussed and commented by many other researchers including Kothari [2001]. The model is as follows:
MVE = a + b1E + b2BVE
R = a + b1E
OCF = a + b1E
In this model, earnings [E] and book value of equity [BVE] are said to have significant relationship with market value of equity [MVE]. Earnings is also significantly related to stock return. Lastly, earnings can also significantly predicts operating cash flow.
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