Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency

Pingyang Gao

University of Chicago - Booth School of Business

Journal of Accounting Research, Forthcoming

This 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.

Keywords: Short Horizons, Keynesian Beauty Contest, Rational Expectations, Price Efficiency, Disclosure, Social Welfare, Information

JEL Classification: M41, M45, G38, D82

Accepted Paper Series

Not Available For Download

Date posted: January 7, 2008  

Suggested Citation

Gao, Pingyang, Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency. Journal of Accounting Research, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1081008

Contact Information

Pingyang Gao (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Feedback to SSRN

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