Fair value and the formation of financial market prices through ignorance and hazard

Abstract

This chapter develops a dynamic systems analysis to the financial system that generates financial market clearing prices over time and circumstances. It also develops a constructive critique that addresses the theoretical roots of fair value in the efficient financial market hypothesis. The fair value basis of accounting abstracts away from realization. Accounting information provision does result in playing a better role when it provides a fundamental signal that remains independent from financial market price dynamics. Equilibrium does assume the existence of efficient market prices, scoping out all the details concerning their formation through ignorance and hazard. The market prices are assumed to exist and to comply with conditions derived from equilibrium in the financial market. The financial market price formation process involves interactions and exchanges between investors, who aim to buy and selling securities traded on the financial market of reference. The efficient financial market hypothesis develops an elegant mathematical model that exploits some properties of equilibrium prices.