I review empirical research on the relation between capital markets and financial statements.The principal sources of demand for capital markets research in accounting are fundamental analysis and valuation, tests of market efficiency, and the role of accounting numbers in contracts and the political process.The capital markets research topics of current interest to researchers include tests of market efficiency with respect to accounting information, fundamental analysis, and value relevance of financial reporting.Evidence from research on these topics is likely to be helpful in capital market investment decisions, accounting standard setting, and corporate financial

We study certain classes of supermodular and submodular games which are symmetric with respect to material payoffs but in which not all players seek to maximize their material payoffs. Specifically, a subset of players have negatively interdependent preferences and care not only about their own material payoffs but also about their payoffs relative to others. We identify sufficient conditions under which members of the latter group have a strategic advantage in the following sense: at all intragroup symmetric equilibria of the game, they earn strictly higher material payoffs than do players who seek to maximize their material payoffs. We show that these conditions are satisfied by a number of games of economic importance, and discuss the implications of these …ndings for the evolutionary theory of preference formation and the theory of Cournot competition.

Most insights of environmental economics are in line with the standard neoclassical economic model of rational behaviour, formulated in terms of maximization of utility in general, or profits in particular. The standard theory of environmental policy is a case in point. However, the maximization hypothesis and its methodological foundation have been criticized on many grounds, related to a lack of either logical or empirical content. Moreover, over the years a great many alternative models of behaviour have been proposed. Both criticism and alternatives are surveyed here. In the context of environmental economics behavioural assumptions have been most significant for the development of economic valuation theory and environmental policy theory. The focus here will be on environmental policy theory. 1.

Abstract. Over 250 respondents – graduate students in law and public policy – assessed the risks of climate change and valued climate-change mitigation policies. Many aspects of their behavior were consistent with rational behavior. For example, respondents successfully estimated distributions of temperature increases in Boston by 2100. The median value of best estimates was 1–3 degrees Fahrenheit. In addition, people with higher risk estimates, whether for temperature or related risks (e.g., hurricane intensities) offered more to avoid warming. Median willingness to pay (WTP) to avoid global warming was $0.50/gallon, and 3 % of income. And important scope tests (e.g., respondents paid more for bigger accomplishments) were passed. However, significant behavioral propensities also emerged. For example, accessibility of neutral information on global warming boosted risk estimates. Warming projections correlated with estimates for unrelated risks, such as earthquakes and heart attacks. The implied WTP for avoidance was much greater when asked as a percent of income than as a gas tax, a percent thinking bias. Home team betting showed itself; individuals predicting a Bush victory predicted smaller temperature increases. In the climate-change arena, behavioral decision tendencies are like a fun-house mirror: They magnify some estimates and shrink others, but the contours of rational decision remain recognizable. 1.

We employ analysts ’ expected rates of return and provide evidence on the relation between these expectations and firm attributes. The assumption that these expectations are unbiased estimates of market-wide expected rates of return allows us to circumvent the use of realized rates of return and provide evidence on the predictions emanating from traditional asset pricing models. We find a positive and robust relation between expected return and market beta and a

Some modified structural and reduced-form models of credit risk implicitly assume that the market has less information than managers who declare default on their outstanding debt. As a result the announcement of default or disclosure of information that indicates a firm is in distress comes as a “surprise ” to the market. In this paper, we study the extent to which private information is revealed about a firm when it announces information indicating distress. The presence of this private information can be inferred from the extent to which investors can earn abnormal returns on bonds or equities issued by firms announcing distress or default. We analyze how much of the information revealed through the declaration of a credit event is publicly available before a specific announcement of credit difficulties. Using default probabilities supplied by Moody’s KMV (MKMV), known as the Expected Default Frequency�or the EDF�credit measure, we model market expectations regarding the firm’s likelihood of default. We then measure the impact of information revealed through an adverse credit event conditional on this expectation. We find that conditioning on EDF credit measures, only 11 % of the distressed firms’ equities and 18 % of the distressed bonds (belonging to 25 % of the distressed firms) display a

: Part I Problems with the dominant quantitative paradigm Historically the social sciences, including real estate economics, sought to mimic successful physical science methods. But it is impossible to use experimental methods-- the epistemological mainstay of physical science--in most social science research. This makes it far more difficult to demonstrate causation or to establish theory. Moreover, human designed systems are complex, simultaneous, non-linear, open, and evolving processes. Institutions and mental states are causally important--both are complex and changeable--and what's more, created by design to implement culturally mediated values. Positivist studies often ignore basic issues like institutions, reflexivity, time variance of data generating processes, dynamics, complexity, and purposeful choice or design, as well as statistical problems. These errors and omissions in the received paradigm mean quantitative research results are likely to be inaccurate, spurious, or ...

This papers addresses the evolutionary characteristics of social processes from a perspective of the history of economics. The case of Alchian's (1950) paper on 'Uncertainty and Evolution' and the ensuing debate is used to illustrate how actors' perception influenced developments in economics science. The evolutionary character of such a conception is discussed. Candidate units of evolution from economics - routines (Nelson and Winter 1982) -, from human ethology / anthropology: memes (Dawkins 1979), Lorenz' concept of social evolution (Lorenz 1973) and Cloak's cultural instructions (1973, 1975); as well as from psychology - mental representations - (Kelly 1955) are compared. It is postulated that evolutionary processes in the social realm and thus in economics are based on the interplay between perception of actors, actions and effects on the `real' world. In order to operationalize the notion of evolution, personal construct theory, developed by George Kelly (1955), is employed. Personal construct theory aims at identifying the mental representation of actors and relating it to real world phenomena. While interpretation...

Abstract. Chung and Cox (1994) provided an intuitively appealing stochastic model which indicates that superstars may exist regardless of talent and which gives rise to the Yule distribution. We adopt a different empirical approach and test its goodness-of-fit using a parametric bootstrap and several powerful test statistics. Just like the discrete Pareto distribution, it is overwhelmingly rejected: it is a fairly accurate approximation of the lower quantiles of the superstar distribution, but overestimates the snowball effect that makes consumers purchase records of the most successful artists. In other words, the Yule distribution captures stardom, but not superstardom. A generalization of the Yule distribution provides an excellent fit in two of the three data sets.

Abstract. In this paper, we provide a formal framework for studying the empirical content of a given theory. We define the falsifiable closure of a theory to be the least weakening of the theory that makes only falsifiable claims. The falsifiable closure is our notion of empirical content. We prove that the empirical content of a theory can be exactly captured by a certain kind of axiomatization, one that uses axioms which are universal negations of conjunctions of atomic formulas. Our results establish an explicit connection between the data one assumes one may observe, and the empirical content of the theory. We present applications to standard revealed preference theory, and to recent theories of multiple selves from behavioral economics.