MARK TO MARKET ACCOUNTING AS A MAGNIFIER OF FINANCIAL CRISES
MARK TO MARKET ACCOUNTING AS A MAGNIFIER OF FINANCIAL CRISES

Author(s): Nemanja Stanišić, Snezana Drago Popovic Avri, Vule Mizdraković, Marina Đenić
Subject(s): Economy, Business Economy / Management, Financial Markets, Accounting - Business Administration
Published by: ASERS Publishing
Keywords: financial crisis; mark-to-market accounting; procyclicality
Summary/Abstract: The main objective of this chapter is to provide an analysis on whether mark-to-market accounting magnifies financial crises. Even though the results of numerous studies on this topic offer various conclusions, the majority of them conclude that fair value accounting, or mark-to-market accounting, does not cause financial crises. Most studies that had similar conclusions dealt with the 2006-2008 period, whereas we focus our research on period from 1881 to present day. Primarily, we will point out the historical context of the implementation of mark-to-market accounting and consequences it had. We consider the long term relationship between United States (US) GDP and the S&P 500 index values and key historical developments to conclude that implementation of mark-to-market accounting contributes to creating of asset bubbles and assets over estimations. Even though mark-to-market accounting does not cause financial crises, it does magnify fundamental procyclicality which is inherent in efficient markets.

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