The impact of accounting disclosure on emerging stock market prediction in an unstable socio-political context

Headnote

Abstract: The paper analyzes the impact of accounting disclosure on the prediction quality of stock market prices. The study also investigates whether a changing socio-political context affects the prediction quality. We focused on the Tunisian case, which has known a political turmoil in January 2011. Our sample includes 48,204 daily stock closing prices of 39 companies listed in Tunis Stock Exchange from 2009 to 2014. We used an Artificial Neural Network (ANN) with a Multi-layer Perceptron topology to predict the time series. The simulations showed that the average annual prediction error of the stock prices is the largest in the period relating to the January 2011 events. Thus, the country socio-political context impacts negatively the prediction quality of the stock market prices. Furthermore, the integration of an accounting variable improves the quality of the stock prices prediction for all the study periods, except the one that corresponds to the events of January 2011. In other words, it appears that accounting disclosure does not improve prices prediction quality in an unstable context.

Keywords: Accounting disclosure, Socio-political context, Stock prices prediction, Price discovery.

JEL codes: G14, G17, M41

(ProQuest: ... denotes formulae omitted.)

1. Introduction

It is a well-known fact that stock prices react to accounting-based earnings disclosures (Lev, 1989). Relatively few studies analyze the impact of these accounting disclosures on the prediction of stock prices, and specifically when it comes to an unstable country context.

For decades, Tunisia, an emerging country, has been considered one of the success stories in the African continent, characterized by a Gross Domestic Product growth of 4.2% in 2008, 3% in 2009 and 3.5% in 2010, according to the World Development Indicators database. Yet, on December 17, 2010 the self-immolation of a street vendor launched a revolution, and former President Zine El Abidine Ben Ali left power after a month of protests and violent confrontations.

In this changing socio-political context, it seems interesting to analyze the prediction quality of the stock market prices on the Tunis Stock Exchange, prior to and after the integration of an accounting variable. The idea here is to verify whether the integration of an accounting variable would have the same impact on the quality of the prediction in an unstable socio-political context as in a...