Fair Value Accounting and the Overreaction of the Stock Returns
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| Title | Fair Value Accounting and the Overreaction of the Stock Returns
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| Author | TAN Hongtao Cai Li and Cai Chun |
| Organization | Southwestern University of Finance and Economics |
| Email | caili928@yahoo.com.cn,c_cai@swufe.edu.cn |
| Key Words | Fair Value; Overreaction of the Stock Returns; Event Study |
| Abstract | In this paper, we investigate whether fair value accounting is associated with an overreaction of stock returns by the approach of event study. We find that there is a significantly positive association between the overreaction of stock returns and the unrealized gain or loss on the changes of fair value in the trading financial assets in the financial sector at the estimation windows rather than at the event windows. Further tests suggest that the extent to which the overreaction in a bull market is double of the extent to which the overreaction in a bear market in Chinese financial sector. Our evidence not only supports the argument that the mark-to-market accounting regime amplifies both the stock bubbles and the stock initial negative shocks but also indicates the asymmetry of stock overreaction on the mark-to-mark regime in different market situations. Moreover，we modify the approach of event study suitable for the issues of the mark-to-market measure. |
| Serial Number | WP78 |
| Time | 2011-07-20 |
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