A General Affine Earnings Valuation Model

  title={A General Affine Earnings Valuation Model},
  author={Andrew Ang and Jun Liu},
We introduce a methodology, with two applications, that incorporates stochastic interest rates, heteroskedasticity and risk aversion into the residual income model. In the first application, goodwill is an affine (constant plus linear term) function where the constant and linear coefficients are time-varying. Homoskedastic risk gives rise to a constant risk premium, while heteroskedastic risk gives rise to linear state-dependent risk premiums. In the second application, we present a class of… CONTINUE READING
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