DISCUSSION.

Professor Ball's paper reports the results of an extremely detailed and exhaustive study of the effect on security prices of changes in accounting techniques affecting the reported net income figure. His contribution is both substantive, in that it provides further evidence in support of the efficient markets hypothesis, and methodological, in that it proposes refinements to the usual technique used to study the impact of new information on stock prices. I shall discuss these two aspects of his paper separately. The major finding of the paper is that capital markets are efficient to the extent that investors are able to see through the accountant's veil to derive independent estimates of the true economic income of firms. We may conclude from this that annual income reports do nothing to obstruct the flow of information from firm to investor, even if they do relatively little to facilitate it. However, it would be wrong to take this as implying that the principle of consistency in accounting is irrelevant' market efficiency is quite compatible with variations in investor sophistication, and it is possible that changes in accounting techniques lead to wealth transfers from the naive to the sophisticated, which would be widely regarded as undesirable. [ABSTRACT FROM AUTHOR]