Review of Accounting Studies

, Volume 11, Issue 2–3, pp 417–427 | Cite as

Discussion of “Feedback loops, fair value accounting and correlated investments”

  • Lisa Koonce


My paper discusses Bloomfield, Nelson, and Smith’s (BNS) model and experimental study of the price dynamics that arise when a firm’s accounting reports are predictable from its stock returns. This phenomenon occurs when the firm takes a position in an asset that generates unrealized gains and losses (UGL’s) that are correlated with the firm’s own returns. My discussion of BNS focuses on three features that are often used to evaluate research—namely, potential for falsification, internal validity, and external validity. I view and evaluate the BNS paper in light of each of these features. I also briefly comment on how well the paper addresses issues related to fair value accounting.


Accounting Market behavior Psychology Bias 

JEL Classification

M41 G14 C92 



I thank Eric Hirst, Bill Mayew, Curt Rogers, Mary Stone, Connie Weaver, and Jen Winchel for their helpful comments on this discussion.


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Copyright information

© Springer Science+Business Media, LLC 2006

Authors and Affiliations

  1. 1.Department of Accounting, McCombs School of BusinessThe University of TexasAustinUSA

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