Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency

Pingyang Gao ()

Journal of Accounting Research, 2008, vol. 46, issue 4, 785-807

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.

Date: 2008
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https://doi.org/10.1111/j.1475-679X.2008.00295.x

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Working Paper: Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency (2007)
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