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.
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
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