Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency
AbstractThis paper examines the market efficiency consequences of accounting disclosure in the context of stock markets as a Keynesian beauty contest, an influential metaphor originally proposed by Keynes (1936) and recently formalized by Allen, Morris, and Shin (2006). In such markets, public information plays an additional commonality role, biasing stock prices away from the consensus fundamental value toward public information. Despite this bias, I demonstrate that provisions of public information always drive stock prices closer to the fundamental value. Hence, as a main source of public information, accounting disclosure enhances market efficiency, and transparency should not be compromised on grounds of the Keynesian-beauty-contest effect.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 9480.
Date of creation: Jun 2007
Date of revision: Oct 2007
Keynesian Beauty Contest; Public Information; Coordination; Market Efficiency;
Other versions of this item:
- Pingyang Gao, 2008. "Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency," Journal of Accounting Research, Wiley Blackwell, vol. 46(4), pages 785-807, 09.
- K2 - Law and Economics - - Regulation and Business Law
- M4 - Business Administration and Business Economics; Marketing; Accounting - - Accounting
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
This paper has been announced in the following NEP Reports:
- NEP-ACC-2008-07-20 (Accounting & Auditing)
- NEP-ALL-2008-07-20 (All new papers)
- NEP-LAW-2008-07-20 (Law & Economics)
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