ENCORE - Engaging New Controversial Original Rigorous Entertaining
Accounting And Asset Pricing
Seminar by Professor Ray Ball
3rd November 2020 – On-Line
The LQG is very pleased that Professor Ray Ball accepted the invitation to share his insights based on over 50 years of multi-award winning academic accounting research.
In this seminar Professor Ball will discuss accounting and asset prices. Earnings and returns might seem like completely different concepts, but they are closely related economic variables — much more so than commonly appreciated. A variety of earnings-related accounting variable predict stock returns, including: Net Income, Operating Profitability, Cash-based Operating Profitability and Retained Earnings to Market. Cash-based Operating Profitability subsumes Accruals. Retained Earnings to Market subsumes Book to Market. With these and other accounting variables, “the devil is in the details.” Why? Because earnings, cash flows and book values have components that are economically different.
Professor Ball has very generously made the slides he presented available by clicking here.
Professor Ray Ball
Professor Ray Ball
Over five decades since the genesis of modern Financial Economics, Ray Ball has pioneered its development in the area of Accounting.
His 1968 Journal of Accounting Research paper, co-authored with Philip Brown, “An Empirical Evaluation of Accounting Income Numbers,” revolutionized our understanding of the economic properties of accounting earnings and how they are related to firms’ share prices. The paper is credited with laying the foundation for much of the subsequent accounting literature. In 1986 the paper received the American Accounting Association’s inaugural award for Seminal Contributions to the Accounting Literature. The award stated: “No other paper has been cited as often or has played so important a role in the development of accounting research during the past thirty years.” The paper also reported the first anomalous evidence for the then-nascent Efficient Markets Hypothesis. In 2019 the paper received the Wharton-Jacobs Levy Prize for Quantitative Financial Innovation, “given biennially to recognize excellence in quantitative research that has contributed to a particular innovation in the practice of finance.”
Ball also is the author of “Anomalies in Relationships between Securities’ Yields and Yield Surrogates,” published in Journal of Financial Economics in 1978. This paper introduced Thomas Kuhn’s concept of an anomaly to the Financial Economics literature. It was the first recognition and documentation that anomalies in efficient market theory are systematic, an area that subsequently has burgeoned into a substantial Asset Pricing literature. More recently, in 2015-20, together with Joseph Gerakos, Juhani T. Linnainmaa and Valeri Nikolaev, he published three papers in the Journal of Financial Economics extending this work.
Other foundational research includes “The Effect of International Institutional Factors on Properties of Accounting Earnings,” co-authored with S.P. Kothari and Ashok Robin and published in Journal of Accounting and Economics in 2000, that has influenced much international accounting research. “Earnings Quality in U.K. Private Firms,” co-authored with Lakshmanan Shivakumar and published in Journal of Accounting and Economics in 2005, was influential in opening the accounting literature to researching firms that are not publicly traded.
In 1971, at age 26, he accepted the position of Professor of Accounting & Business Finance at the University of Queensland, which was then the second youngest ever full-professor appointment in any area in any Australian university. During 1972-85, working with his colleague Philip Brown, Ball oversaw construction of the first financial research databases outside the US, and conducted foundational research on the Australian capital market. In 1976 he founded the Australian Journal of Management, currently in its 45th year of publication.
For his research, Ball was awarded honorary degrees by the Helsinki School of Economics, the Katholieke Universiteit Leuven, the University of Queensland, the University of London, and the University of New South Wales. He was elected to the Accounting Hall of Fame in 2009 and to the Australian Accounting Hall of Fame in 2018. In 2015, the Institute of Chartered Accountants in England and Wales made him its eighth Honorary Member. He was a Fulbright Scholar.
Ball serves on the Advisory Group for the Financial Reporting Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW). He has served on the Financial Accounting Standards Advisory Council (FASAC) of the Financial Accounting Standards Board (FASB), on the Shadow Financial Regulation Committee, and as a Trustee of Harbor Funds.
Ball taught at the University of Queensland, Australian Graduate School of Management, London Business School and University of Rochester prior to rejoining Chicago Booth in 2000. He has served as a professor at the European Institute for Advanced Studies in Management.
He received a bachelor’s degree in accounting from the University of New South Wales in Australia, and an MBA in 1968 and a PhD in economics in 1972 from Chicago Booth.
His interests include reading, cooking, wine, clocks, cricket and rugby. Ball has been a Chicago Bulls fan for over 50 years.