Feedback loops, fair value accounting and correlated investments |
| |
Authors: | Robert J. Bloomfield Mark W. Nelson Steven D. Smith |
| |
Affiliation: | 1. Johnson Graduate School of Management, Cornell University, Ithaca, NY, 14853, USA 2. University of Illinois at Urbana–Champaign, 211 Wohlers Hall, 1206 South Sixth Street, Champaign, IL, 61820, USA
|
| |
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: | |
本文献已被 SpringerLink 等数据库收录! |
|