Share price formation, market exuberance and financial stability under alternative accounting regimes

This paper develops a theoretical analysis of share market price formation driven by accounting and market structures. Heterogeneous investors are assumed to discover and process fundamental information disclosed by accounting system of share-issuing entity. Information set available to share market investors for decision-making comprises then market-driven and firm-specific (non-market) information. On the one side, accounting system provides collective signal of fundamental information; on the other side, price system provides collective signal of market-driven information over time. Both jointly drive the formation of aggregate share market prices through limited knowledge, hazard, and social interaction. Numerical simulations are provided under alternative accounting designs (namely, historical cost and fair value accounting regimes), to derive implications and recommendations for the concept and occurrence of speculative bubbles and herd behavior; the cyclical effects of accounting regime on share market dynamics; and the \u201cvalue relevance\u201d of accounting information and its role in the formation of share market prices over time. This numerical statistical analysis contributes to shed light on accounting anomalies and fundamental analysis

Fair value accounting: information or confusion for financial markets?

This paper examines whether and how fair value measurement and disclosure by US bank holding companies influences financial analysts\u2019 ability to forecast earnings. Fair value measurement relates to more dispersed forecasts. Measurement basis disclosure (levels 1, 2 and 3) enacted by SFAS 157 translates into more accurate forecasts but has neutral effects for banks with a sizable proportion of assets at fair value. Furthermore, level 2 measurement relates to enhanced forecast accuracy, while level 3 measurement relates to increased forecast dispersion. These contrasting results reflect analysts\u2019 underlying information environment, with level 2 measurement translating into higher quality private and public information and level 3 into reductions in the quality of private and public information. Results do not change after controlling for assets\u2019 underlying riskiness. Overall, it appears that analysts perceive that managers convey useful information through level 2 figures but act opportunistically in measuring level 3 fair value figures