BUS 421 Lecture Notes - Lecture 3: Capital Asset Pricing Model, Behavioral Economics, Standard Accounting Practice

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 421
• Professor: Karel Hrazdil

Document Summary

Implications for financial reporting: accounting policies do not affect security pricing unless they have affect on the company"s cash flows, accounting standard setters do not have to worry about na ve investors. If benefits exceed cost management should disclose all information because: additional information will not be wasted by the efficient market and will improve prediction of cash flows, more investor confidence less worrying about inside information. Market prices are reflective of the average interpretation of all investors with all publicly available information. Market moves away from equilibrium because of noise traders. Accountants are in a competitive information providing market. Accounting standards can help mitigate adverse selection and information disadvantage. Behavioral economics: behavioral economics says that individual" make decisions irrationally. , individual"s decisions are motived by cognitive biases , cognitive biases are emotions, past experience, or simple rules of thumb that influence your decision.