Question

1. What are narrow window studies and wide window studies in accounting research, and what are they used for respectively.

2. List Fair value hierarchy according to IFRS 13, ASC 820-10

Answer 1

.Answer-1)

Narrow window-

It means that accounting information is the cause of the market reaction and the source of new information to investors because there are relatively few firm-specific events other than net income that affect share returns. This is based on support decision usefulness.

Wide window

It is the underlying economic performance of the firm that generates the association between net income and return. This shows the price lead earnings effect. There are reasons for the differential in market response. The greater change in unexpected earnings will result in greater the security market response.

2)

Fair value is defined by IFRS 13 as ‘the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.’

IFRS 13 indicates that when measuring fair value, the following must be considered:

• The asset or liability being measured, including its condition, location and any restrictions on sale
• The principal (or most advantageous) market in which an orderly transaction would take place for the asset or liability
• For a non-financial asset, the highest and best use of the asset and whether the asset is used in combination with other assets or on a stand-alone basis
• The assumptions that market participants would use when pricing the asset or liability.