Much of capital market research in accounting over the past 20 years has assumed that the price adjustment process to information is instantaneous and/or trivial. This assumption has had an enormous influence on the way we select research topics, design empirical tests, and interpret research findings. In this discussion, I argue that price discovery is a complex process, deserving of more attention. I highlight significant problems associated with a naı̈ve view of market efficiency, and advocate a more general model involving noise traders. Finally, I discuss the implications of recent evidence against market efficiency for future research.

Predicted stock issuers (PSIs) are firms with expected high-investment and low-profit profiles that earn extremely low returns. We evaluate alternative explanations for this empirical phenomenon. Our results show top-PSI firms are cash-strapped, have lottery-like payoffs, high volatility, high beta, low liquidity, and high shorting costs. Over the next 2 years, top-PSI firms earn return on assets of −30% per year, report disappointing earnings, and experience strongly negative forecast revisions. They perform poorly in down markets and are six times more likely to delist for performance-related reasons. Overall, we find substantial support for mispricing, some support for nonstandard preferences, and virtually no support for the risk explanation. (JEL G12, G14, G32, G40, G41) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Productivity Levels and International Competitiveness between Canadian and U.S. Industries by Frank C. Lee and Jianmin Tang. Published in volume 90, issue 2, pages 176-179 of American Economic Review, May 2000

Governments sometimes impose price controls and nonprice rationing-by-queuing. Profit-seeking firms occasionally ration by putting their customers on “allocation.” Following Barzel [1974] and Deacon and Sonstelie [1985], we take the decision to ration as a given and analyze it, employing standard microeconomics and applied welfare economics. This paper adds to the literature by focusing on optimally rationing a good across markets. Further, we estimate the actual welfare cost of improper allocation across markets in the U. S. gasoline crises of 1973–1974 and 1979.

AT least since Mandeville's Fable of the Bees (I728), there have been underconsumptionists who have ascribed trade depressions to deficiency in consumption expenditures.' Underconsumptionist thought may further be subdivided into two schools. Monetary underconsumptionism, which does not concern us here, blames underconsumption upon flaws in the processes of creation and circulation of money and credit. Social Credit movement in Great Britain and the Greenback movement in the United States may serve as illustrations. Since Marx and Rodbertus, however, the deficiency of consumption expenditures (and purchasing power) has been ascribed more commonly to maldistribution of real income. This we shall call maldistributionist or real underconsumption. During prosperity, income is concentrated in the higher brackets, where a large fraction is saved. If the savings are hoarded, there arises an immediate deficiency in consumption. If the savings are invested, the deficiency is only postponed until the day when additional consumption goods are produced because of the new investment, and come on to market without additional purchasing power to absorb them. Such, in briefest outline, is the position of the late John A. Hobson, the leading English-language representative of real underconsumptionism in the twentieth century.2 In this view, the principal means to prevent and to remedy depressions is substantial redistribution of income in the direction of greater eaualitv. In addition to Rodbertus, Marx, Hobson, and other leaders of the economic underworld, Keynes has given this position an indirect accolade in the General Theory,3 and it has been adopted by a substantial fraction of the neo-Keynesian school. Virtually all of the discussion, however, has been carried on in a quantitative semi-vacuum, which is to say, without any precise ideas as to the quantitative importance of possible income redistributions. It was of course recognized from the outset that personal savings rise faster than personal income, or in current jargon, that individuals' average propensities to save rise with their incomes. What was not recognized, however, was that for redistribution problems the relative marginal propensities to save of different income classes were likewise important, since redistribution involves shifts between income classes at the margin. To cite an extreme case, if all individuals' marginal propensities to save were identical, equalization of incomes would have no effect whatever on aggregate consumption and saving, however great might be the disparities in average propensities between rich and poor.4 Keynes himself, it would appear, was guilty of some inconsistency on this subject. He considered his consumption function relatively stable (which presumably means stable with respect to changes in income distribution), and at the same time he advocated income equalization in the interest of increased aggregate consumption. One of the first studies to apply modern aggregative analysis in estimating the quantitative effect of income redistribution on aggregate consumption was carried out by Harold Lubell at the Board of Governors of the Federal Reserve System.5 His study, which has been un* This study was financed by a grant from the Social Science Research Committee of the University of Wisconsin. 1 Harry G. Johnson cites the French Physiocrat Boisguillebert a century earlier as maintaining that trade would be more active if taxation fell on the rich than if it fell on the poor, which comes closer than Mandeville to a maldistributionist position. The Macro-Economics of Income Redistribution, in Alan T. Peacock (ed.), Income Redistribution and Social Policy (London, I954), p. I9. 2 For a full presentation of Hobson's views, see Erwin E. Nemmers, Hobson and Underconsumption (unpublished Ph.D. dissertation, Wisconsin, I953). We have called Hobson a twentieth-century writer, :but the initial presentations of his views appeared before the turn of the century. 'Keynes, General Theory, pp. 369-74. ' average propensities are important in this case only if ioo per cent of one individual's income is being taken away, or in a case where income is being given to individuals who had none before. 5 Harold Lubell, Effects of Income Redistribution on Consumers' Expenditures, American Economic Review, xxxvii (March 1947), 157-70, corrected in part, ibid., xxxvii (December 1947), 930. Lubell results appear to have furnished statistical

The bookkeeping procedures have been described as an information process of data collection, classification, tabulation, summarization, and presentation. The accounting classification and measurement function tends to be overlooked due to the clerical work involved in it. The financial state of the firm is continuously changing, of course, because of the occurrence of economic events. It is the accountant's function to recognize their effect on the financial state. A general accounting process may be described as a means of achieving the decision-making end of an accounting information user. This paper centers on the first part of the process-the information formation process, a process by which the accounting classification and measurement function determines the effect of an economic event on a firm's financial state. A communication channel model is used to describe the accounting classification function as the link between the various economic events of a firm and its financial state. The accounting channel of classification may be deterministic, lossless, or noisy as defined in information theory.

Option market activity increases by more than 10 percent in the four days before quarterly earnings announcements. We show that the direction of this preannouncement trading foreshadows subsequent earnings news. Specifically, we find option traders initiate a greater proportion of long (short) positions immediately before “good” (“bad”) earnings news. Midquote returns to active‐side option trades are positive during nonannouncement periods and are significantly higher immediately prior to earnings announcements. Bid‐ask spreads for options widen during the announcement period, but traders do not gravitate toward high delta contracts. Collectively, the evidence shows option traders participate generally in price discovery (the incorporation of private information in price), and more specifically in the dissemination of earnings news.