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Accounting Standards And Financial Market Stability: An Experimental Examination, Shengle Lin, Glenn Pfeiffer, David Porter
Accounting Standards And Financial Market Stability: An Experimental Examination, Shengle Lin, Glenn Pfeiffer, David Porter
ESI Working Papers
We examine the effect on asset mispricing of different accounting methods in an experimental asset market characterized by bubbles and crashes. In particular, we study three alternative asset value reporting treatments: (1) Fair Value (also known as Mark-to-Market – M2M), (2) Historical Cost (HC) and (3) Marked to Fundamental Value (M2F). In addition, each of these treatments is replicated in two different financial leverage conditions. In the first condition (No Loan) traders must purchase assets from their available cash balances without the option of borrowing. In the second condition, (Loan), traders are given the option of taking out loans based …