Share Price Formation, Financial Instability and Accounting Design

American Accounting Association Annual Meeting, S. Francisco, August 2010

34 Pages Posted: 10 Nov 2009 Last revised: 5 Jun 2013

See all articles by Yuri Biondi

Yuri Biondi

French National Center for Scientific Research (CNRS)

Pierpaolo Giannoccolo

University of Bologna

Date Written: June 5, 2013

Abstract

This paper develops a model of share price formation driven by accounting and market structures. Heterogeneous investors are assumed to discover and process fundamental information disclosed by the accounting system. The information set available to share market investors is then jointly composed by market-driven and firm-specific (non-market) information. From one side, the accounting system provides collective signals of fundamental information. From another side, the price system provides collective signals of market-driven information. Both structures are significant for the formation of aggregate share market prices over time. We simulate share price formation under alternative accounting designs (namely, historical cost and fair value accounting), and derive implications and recommendations for the concept and occurrence of speculative bubbles, the cyclical effects of accounting design on share market evolution, and share market allocative efficiencies.

Keywords: accounting information, asset pricing model, fundamentalism, chartism, large fluctuations, market microstructure, historical cost accounting, fair value accounting

JEL Classification: C63, D4, M41, M48, G1

Suggested Citation

Biondi, Yuri and Giannoccolo, Pierpaolo, Share Price Formation, Financial Instability and Accounting Design (June 5, 2013). American Accounting Association Annual Meeting, S. Francisco, August 2010. Available at SSRN: https://ssrn.com/abstract=1502912

Yuri Biondi (Contact Author)

French National Center for Scientific Research (CNRS) ( email )

IRISSO - University Paris Dauphine PSL
Place Marechal Lattre Tassigny
75016 Paris
France

HOME PAGE: http://yuri.biondi.free.fr/

Pierpaolo Giannoccolo

University of Bologna ( email )

Department of Economics
Piazza Scaravilli, 2
40125 Bologna, 40125
Italy

HOME PAGE: http://www2.dse.unibo.it/giannoccolo

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