Revisiting Fair Value Accounting as a Magnifier of Financial Crises

Keywords:
mark to market, reflexivity, equilibrium, financial bubble

Abstract:
In an earlier paper titled ‘Mark-to-market accounting as a magnifier of financial crises’, we advocated that fair value or mark-to-market accounting magnifies financial crises by creating a feedback loop between figures from financial reports and financial markets. We proposed a simple method for assessing how overpriced the US stock market is, which included a comparison between fixed base indexes of the S&P 500 and nominal US GDP. In this paper, we reiterate the role that fair value accounting is expected to play in both the creating and bursting of financial bubbles, putting it in the context of theories of ‘reflexivity’ and ‘almost self-fulfilling equilibria’. We reassess the level of the US stock market, showing that a substantial stock market bubble (the third in the last two decades) has been formed recently and that significant market corrections may happen in 2016.

CITATION:

IEEE format

Copy to clipboard

V. Mizdraković, N. Stanišić, “Revisiting Fair Value Accounting as a Magnifier of Financial Crises,” in Sinteza 2016 - International Scientific Conference on ICT and E-Business Related Research, Belgrade, Singidunum University, Serbia, 2016, pp. 382-388. doi:10.15308/Sinteza-2016-382-388

APA format

Copy to clipboard

Mizdraković, V., Stanišić, N. (2016). Revisiting Fair Value Accounting as a Magnifier of Financial Crises. Paper presented at Sinteza 2016 - International Scientific Conference on ICT and E-Business Related Research. doi:10.15308/Sinteza-2016-382-388

BibTeX format
Download

RefWorks Tagged format
Download