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Accounting for bubbles: A discussion of Arif and Sul (2024)

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  • Ellahie, Atif

Abstract

A signal that identifies asset pricing bubbles would be valuable so investors could reposition their portfolios to weather the bubble, yet ex ante bubble identification has proven illusory. Arif and Sul (2024) study whether industry-level investment in net operating asset (NOA) accruals is an ex ante accounting-based signal that predicts bubbles. Using industry-level price run-ups across 49 countries, they find that NOA accruals predict a higher likelihood of a future crash, lower future returns, and larger analyst forecast errors, especially following run-up periods. The authors attribute these patterns to sentiment-driven overinvestment. My discussion summarizes the contributions of Arif and Sul's findings to the asset pricing bubbles, behavioral finance, and aggregate accruals literatures. I also outline empirical challenges faced by studies investigating bubbles and recommend approaches to further strengthen inferences. Finally, I propose opportunities for future research to integrate deeper accounting knowledge into bubble research.

Suggested Citation

  • Ellahie, Atif, 2024. "Accounting for bubbles: A discussion of Arif and Sul (2024)," Journal of Accounting and Economics, Elsevier, vol. 78(2).
    • Handle: RePEc:eee:jaecon:v:78:y:2024:i:2:s0165410124000478
    DOI: 10.1016/j.jacceco.2024.101717
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    More about this item

    Keywords

    Asset pricing; Behavioral finance; Aggregate accruals; Market efficiency; Bubbles;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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