The coefficient a1 would have an expected value of 1.0 while the coefficients a2 to a4
would have expected values of (1 + r)
ÿ t. Finally, the expected value of coefficient ak
would be (1/r)*(1 + r)
ÿ T.3 Residual earnings horizons will differ cross-sectionally; therefore,
parsimonious cross-sectional representations of Equation (1) will have only a few
terms. For example Frankel and Lee (1999) use T = 2 because analysts' forecasts used to
predict future residual earnings were only available for 2 years.