Discussion of Disclosure of Estimates of Holding Gains and the Assessment of Systematic Risk

Abstract

The paper by Abdel-khalik and McKeown (hereafter A-M) states: We consider the replacement cost (RC) estimates disseminated by Value Line (in 1976) an information event analogous to earnings forecasts whose impact on capital market equilibrium can be evaluated. I counted four hypotheses in the paper, although there may have been only three basic hypotheses. Before restating them, I will apologize in advance for what may be a lack of understanding of them, so I will not be offended if the authors develop a retort along the following lines: We know you hope you understand what you think we wrote, but we are not sure you realize that what you read is not what we meant. There are four hypotheses regarding the information content of RC information. The first two say RC has no information content. The last two say RC information has information content: (i) RC information has no information content. It has not and will not impact stock prices. Another way of stating this hypothesis is that RC information is not information because it is irrelevant. (ii) RC estimates disseminated by Value Line in 1976 may have been impounded in 1976, but it is likely that RC information was not impounded prior to 1976. (This also seems to say RC information has no information content.) (iii) RC information has information content. The securities markets have already impounded RC information. This impounding occurred prior to the dissemination of RC estimates by Value Line. (iv) RC information has information content. RC estimates are expected to have information content that would induce stock price revisions. This hypothesis may be saying that RC information has no information content unless RC