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Discussion of “Feedback loops, fair value accounting and correlated investments”

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  • Lisa Koonce

    (The University of Texas)

Abstract

My paper discusses Bloomfield, Nelson, and Smith’s (BNS) model and experimental study of the price dynamics that arise when a firm’s accounting reports are predictable from its stock returns. This phenomenon occurs when the firm takes a position in an asset that generates unrealized gains and losses (UGL’s) that are correlated with the firm’s own returns. My discussion of BNS focuses on three features that are often used to evaluate research—namely, potential for falsification, internal validity, and external validity. I view and evaluate the BNS paper in light of each of these features. I also briefly comment on how well the paper addresses issues related to fair value accounting.

Suggested Citation

  • Lisa Koonce, 2006. "Discussion of “Feedback loops, fair value accounting and correlated investments”," Review of Accounting Studies, Springer, vol. 11(2), pages 417-427, September.
    • Handle: RePEc:spr:reaccs:v:11:y:2006:i:2:d:10.1007_s11142-006-9007-y
    DOI: 10.1007/s11142-006-9007-y
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    References listed on IDEAS

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    1. Kathryn Kadous & Lisa Koonce & Kristy L. Towry, 2005. "Quantification and Persuasion in Managerial Judgement," Contemporary Accounting Research, John Wiley & Sons, vol. 22(3), pages 643-686, September.
    2. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December.
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    5. Eric J. Johnson & John W. Payne, 1985. "Effort and Accuracy in Choice," Management Science, INFORMS, vol. 31(4), pages 395-414, April.
    6. Pamela A. Smith & Cheri L. Reither, 1996. "Comprehensive Income and the Effect of Reporting It," Financial Analysts Journal, Taylor & Francis Journals, vol. 52(6), pages 14-19, November.
    7. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    8. Camerer, Colin F, 1987. "Do Biases in Probability Judgment Matter in Markets? Experimental Evidence," American Economic Review, American Economic Association, vol. 77(5), pages 981-997, December.
    9. Hirst, DE & Hopkins, PE, 1998. "Comprehensive income reporting and analysts' valuation judgments," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 36, pages 47-75.
    10. Libby, Robert & Bloomfield, Robert & Nelson, Mark W., 2002. "Experimental research in financial accounting," Accounting, Organizations and Society, Elsevier, vol. 27(8), pages 775-810, November.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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