Fair Value and the Formation of Financial Market Prices Through Ignorance and Hazard

Chapter 16 in “The Routledge Companion to Fair Value in Accounting”, Gilad Livne & Garen Markarian eds. London and New York: Routledge (2018), ISBN: 9781138656505

15 Pages Posted: 27 Mar 2018

See all articles by Yuri Biondi

Yuri Biondi

French National Center for Scientific Research (CNRS)

Date Written: March 21, 2018

Abstract

Fair value refers to current values as the backbones of accounting measurements. Current value follows the efficient financial market (EFM) hypothesis - which abstracts away from economic realization - as guidance for the financial market investment process through ignorance and hazard. This chapter takes a systemic perspective on the formation of financial market prices over time and circumstances. Our financial system approach relaxes that EFM hypothesis by distinguishing and specifying both (i) the timely provision and treatment of firm-specific information, and (ii) the aggregating market price fixing that assures the ongoing matching between market orders which may depend on the latter information. From this systemic perspective, fair value regimes increase market volatility and market exuberance with inefficient allocative effects, although the correlation of accounting information with the market price series is improved.

Keywords: fair value, current value, historical cost, accounting measurement, accounting model, accounting information

JEL Classification: M41, D83, G14, D53, G41

Suggested Citation

Biondi, Yuri, Fair Value and the Formation of Financial Market Prices Through Ignorance and Hazard (March 21, 2018). Chapter 16 in “The Routledge Companion to Fair Value in Accounting”, Gilad Livne & Garen Markarian eds. London and New York: Routledge (2018), ISBN: 9781138656505. Available at SSRN: https://ssrn.com/abstract=3147037

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/

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