Feedback loops, fair value accounting and correlated investments

Robert J. Bloomfield (), Mark W. Nelson () and Steven D. Smith ()
Additional contact information
Robert J. Bloomfield: Cornell University
Mark W. Nelson: Cornell University
Steven D. Smith: University of Illinois at Urbana–Champaign

Review of Accounting Studies, 2006, vol. 11, issue 2, No 12, 377-416

Abstract: Abstract This paper presents and tests a model of the price dynamics that arise when investors fail to recognize the redundancy of unrealized gains and losses (“UGLs”) that are correlated with the firm’s past returns. Consistent with the predictions of our model, our experiment shows that a firm’s prices and earnings become highly volatile when correlated investment is large and correlated UGLs are made salient by comprehensive income reporting. The results suggest that including correlated UGLs in performance numbers could induce violations of weak-form efficiency that exacerbate volatility in share prices and earnings.

Keywords: Fair-value accounting; Market efficiency; Laboratory markets (search for similar items in EconPapers)
JEL-codes: C92 G14 M41 (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11142-006-9003-2 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:reaccs:v:11:y:2006:i:2:d:10.1007_s11142-006-9003-2

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1007/s11142-006-9003-2

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().