Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency

Gao, Pingyang (2007): Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency. Forthcoming in: Journal of Accounting Research

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Keynesian Beauty Contest, Public Information, Coordination, Market Efficiency
• Subjects: K - Law and Economics > K2 - Regulation and Business Law; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

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