Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency

Pingyang Gao ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the market efficiency consequences of accounting disclosure in the context of stock markets as a Keynesian beauty contest, an influential metaphor originally proposed by Keynes (1936) and recently formalized by Allen, Morris, and Shin (2006). In such markets, public information plays an additional commonality role, biasing stock prices away from the consensus fundamental value toward public information. Despite this bias, I demonstrate that provisions of public information always drive stock prices closer to the fundamental value. Hence, as a main source of public information, accounting disclosure enhances market efficiency, and transparency should not be compromised on grounds of the Keynesian-beauty-contest effect.

Keywords: Keynesian Beauty Contest; Public Information; Coordination; Market Efficiency (search for similar items in EconPapers)
JEL-codes: E3 K2 M4 (search for similar items in EconPapers)
Date: 2007-06, Revised 2007-10
New Economics Papers: this item is included in nep-acc and nep-law
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Citations: View citations in EconPapers (1)

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Journal Article: Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:9480

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