Title

Recognition of future news in earnings and price bubbles in experimental asset markets

Document Type

Journal article

Source Publication

Journal of Accounting, Auditing and Finance

Publication Date

10-1-2015

Volume

30

Issue

4

First Page

558

Last Page

575

Publisher

SAGE Publications

Keywords

asset price bubbles, fair value accounting, fundamental values, neutral accounting, recognition of future news

Abstract

In this article, we use an experimental approach to examine the effect of reporting regimes on asset prices. We examine four different reporting regimes: the no recognition (NR) regime where no expected future cash flows are recognized; the full recognition (FR) regime where both the expected good news and expected bad news pertaining to the next period cash flows are recognized in current earnings; the good news recognition (GR) regime where only the expected good news pertaining to the next period cash flows are recognized in current earnings; and the bad news recognition (BR) regime where only the expected bad news pertaining to the next period cash flows are recognized in current earnings. We find that the NR, BR, and GR regimes are associated with more intense asset price bubbles than the FR regime. We also find that between the BR and GR regimes, the BR regime is associated with more intense asset price bubbles than the GR regime. Our findings shed insights about how biased (non-neutral) reporting regimes could affect the price formation process.

DOI

10.1177/0148558X15593854

Print ISSN

0148558X

E-ISSN

21604061

Publisher Statement

Copyright © The Author(s) 2015.

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Full-text Version

Publisher’s Version

Recommended Citation

Ghosh, S., Radhakrishnan, S., Srinidhi, B., & Su, L. (2015). Recognition of future news in earnings and price bubbles in experimental asset markets. Journal of Accounting, Auditing and Finance, 30(4), 558-575. doi: 10.1177/0148558X15593854