Lundholm and OKeefe (2001) state while all authors acknowledge that the models are equivalent in theory, they proceed to compare them anyway based loosely on the idea that in a practical implementation or a large-sample study, the models can vary. They claim that there is nothing to be learned from the empirical comparison of valuation models and thus dismiss the research of Penman (2001) and others claiming the superiority of accrual accounting based residual income models (RIVM).

(c)What is the justification for Penmans assertion that Lundholm and OKeefesclaim is misguided? (refer to Penmans response paper). Whom do you agreewith and why? (d)One of your friends who graduated last year argues that the abnormalearnings model (AEG) has an advantage over the RIVM since AEG does notrely on clean surplus relation. Comment on this viewpoint.