Accounting and the Formation of Share Market Prices Over Time: A Mathematical Institutional Economic Analysis Through Simulation and Experiment

Eastern Economic Association (EEA), 39th Annual Conference, NYC Computational Economics and Complexity Workshop, New York, 9-11 May 2013

8th Annual Workshop on the Economic Science with Heterogeneous Interacting Agents (WEHIA 2013), June 20-22, 2013, Reykjavik University, Iceland

Applied Economics, 2015

24 Pages Posted: 23 Jan 2013 Last revised: 17 Mar 2015

See all articles by Yuri Biondi

Yuri Biondi

French National Center for Scientific Research (CNRS)

Date Written: January 20, 2013

Abstract

This paper develops an agent-based model to examine the emergent dynamic properties of share market price formation over time, with a view on financial market stability under alternative accounting regimes. In the model, individual heterogeneous investors interact with each other and with institutional devices which are an accounting system (related to the business firm) and a price system (related to the Share Exchange). These interactions provide mechanisms for transmission through which firm-specific (accounting signal) and market-driven (aggregate price) drivers can act. A baseline simulation analysis assesses the financial market stability under three alternative accounting designs, namely two kinds of historical cost accounting regime and one kind of fair value (mark-to-market) accounting regime. The former prove to better stabilize the financial system for market volatility and exuberance in perfectly balanced conditions between speculative and fundamentalist beliefs and intentions. An evolutionary analysis is then developed by varying the relative degree of speculative attitudes. Historical cost accounting regimes further prove to make the financial system more resilient to speculative waves occurring at inter-individual level. Baseline findings are further corroborated through experimental analysis in ten artificial financial systems. This mathematical institutional economic analysis has general implications for both designing accounting systems aimed at enhancing financial market stability and preventing procyclicality, and the study of accounting information process in the formation of share market prices over time.

Keywords: financial stability, financial resilience, accounting model, fair value, international accounting, market efficiency, market exuberance, market volatility, accounting procyclicality

JEL Classification: M40, D40, D47, G38, L22, C63, C99

Suggested Citation

Biondi, Yuri, Accounting and the Formation of Share Market Prices Over Time: A Mathematical Institutional Economic Analysis Through Simulation and Experiment (January 20, 2013). Eastern Economic Association (EEA), 39th Annual Conference, NYC Computational Economics and Complexity Workshop, New York, 9-11 May 2013; Applied Economics, 2015. Available at SSRN: https://ssrn.com/abstract=2205574 or http://dx.doi.org/10.2139/ssrn.2205574

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/

Register to save articles to
your library

Register

Paper statistics

Downloads
247
rank
121,416
Abstract Views
1,265
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information