Ball and Brown, 1968

Ball and Brown (1968) work is very important to be understood by researchers in equity valuation. At the time the study was done, there were claims that earnings figure was not accurate and therefore not relevant in equity valuation. In response to these claims, Ball and Brown conducted a study to obtain evidence that in fact earnings information is very useful and contain information to explain market value.

They used the following valuation model:

PRjm=(Pjm+1 + djm)/Pjm,

where, PRjm is relative monthly price of firm j at month m, Pjm is opening price of firm j of month m, djm is dividend of firm j at month m and Pjm is closing price of firm j at month m.