Accounting Information in Efficient Security Market

Abstract

Security market is part of financial market, commonly called capital market. Security market trades long-term financial instruments, such as bonds and stocks. In the security market, accounting or financial information has an important role either partial or integral that stimulates investors in investment decision making, then in turn influence security market reaction. This reaction can be seen from the changing of security price and volume traded. Accounting information that persuades security market reaction regularly is called useful information. This information is able to assist users in decision making. To meet the requirements, the information has to have characteristics such as comparable, relevant, reliable, and material. The market that react the information quickly is called efficient security market. Unfortunately, this efficient market frequently is affected by morale hazard and asymmetrical information. To avoid this problem, the information provided in security market should be useful and understood easily. Two contradictory security characteristics are possible to happen in investment decision making, that is to say as risky and non-risky securities. Repayment for non-risky security can be determined, and this includes investment in bonds and treasury stocks. The problems are able to happen in risky investment decision making in which its repayment cannot be determined. Markowitz proposes the use of portfolios as a mode to solve problems of these risky investments. These portfolios consist of bunch of diversified securities, either risky or non-risky. According to theory, a profitable portfolio is able to provide a certain amount of repayment compare to a little risk. As a consequence, an investor has to have capability to select and decide among profitable portfolios.