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

Sudeep GHOSH, Suresh RADHAKRISHNAN, Bin SRINIDHI, Lixin, Nancy SU

Research output: Journal PublicationsJournal Article (refereed)

1 Scopus Citations

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.
Original languageEnglish
Pages (from-to)558-575
Number of pages18
JournalJournal of Accounting, Auditing and Finance
Volume30
Issue number4
DOIs
Publication statusPublished - 1 Oct 2015
Externally publishedYes

Fingerprint

Price bubbles
News
Experimental asset markets
Cash flow
Asset price bubble
Asset prices
Price formation

Keywords

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

Cite this

GHOSH, Sudeep ; RADHAKRISHNAN, Suresh ; SRINIDHI, Bin ; SU, Lixin, Nancy. / Recognition of future news in earnings and price bubbles in experimental asset markets. In: Journal of Accounting, Auditing and Finance. 2015 ; Vol. 30, No. 4. pp. 558-575.
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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.",
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Recognition of future news in earnings and price bubbles in experimental asset markets. / GHOSH, Sudeep; RADHAKRISHNAN, Suresh; SRINIDHI, Bin; SU, Lixin, Nancy.

In: Journal of Accounting, Auditing and Finance, Vol. 30, No. 4, 01.10.2015, p. 558-575.

Research output: Journal PublicationsJournal Article (refereed)

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AU - RADHAKRISHNAN, Suresh

AU - SRINIDHI, Bin

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N2 - 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.

AB - 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.

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KW - fair value accounting

KW - fundamental values

KW - neutral accounting

KW - recognition of future news

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