Hi, The attachments are article and lecture slide. The questions are:

1. Summarize the main points of the article.

2. Critically discuss the article with specific references tothe theory in the lecture slide.

Please provide the solution separately. Thank you.

8/18/2016 Stock market tip: use Google Trends Stock market tip: use Google Trends Academic rigour, journalistic flair April 26, 2013 1.27pm AEST 6c2d9pbv 1366940580 Search terms can give insight into the likely future behaviour of economic actors. Ahmad Nawawi What a curious thing the stock market is; so powerful, yet so ighty. Like a Author school of sardines, it moves as one, changing direction nimbly when danger looms or advantage beckons. What it will do next has always been dicult to predict. But what if you could now - using nothing more than a free, public online David Tuffley tool? Technical Studies, Griffith University Lecturer in Applied Ethics & Socio Research published today in Nature Scientic Reports nds that Google search behaviour is not only a clear indicator of movements in the market; it also gives insight into the likely future behaviour of economic actors: These warning signs in search volume data could have been exploited in the construction of protable trading strategies. Mind reading from data mining Stock market prediction is so dicult, says Warwick Business School researcher and rst author Tobias Preis, due to \"herding behaviour\". Investors are inuenced by the collective thinking of others in the market, as well as their own personal reasons, so trading patterns in one week are nearly useless for predicting what will happen the following week. https://theconversation.com/stockmarkettipusegoogletrends13745 1/4 8/18/2016 Stock market tip: use Google Trends Knowledge is power ... and may be highly profitable. MyEyeSees To predict the market, Preis says, you need to know what is going through people's minds before they make their nancial decisions - and one way to do this is to see the words they Google. Data mining tools such as Google Trends and Google Correlate are putting powerful analytical toolkits into the hands of investors keen to parlay a small advantage into a large gain. As a point in principle, the price of stock in Apple Inc. is seen to positively correlate with search volume, in this recent article from the Harvard Business School. Twitter feeds are also showing promise as sources of strategic investor information. This was demonstrated in spectacular form on Tuesday when the hacked Associated Press Twitter account reported two explosions in the White House with US President Barack Obama injured. https://theconversation.com/stockmarkettipusegoogletrends13745 2/4 8/18/2016 Stock market tip: use Google Trends Twitter Associated Press immediately corrected the tweet, but the Dow Jones Industrial Average dropped 143 points in a \"ash crash\". And while the market recovered within minutes, the crash showed just how intertwined Twitter and the stock market are. Previous work by German economists Dimp and Jank looked at whether internet search queries could predict stock market volatility. They concluded that daily search query data gives clear insight into people's interest in the market as a whole. Investors are more active with their queries during times of strong market movement. Like Preis, they found a rise in investor attention is followed by a period of heightened market volatility. This was also supported by a group of European researchers who, when studying the American stock exchange NASDAQ-100, found: Query volumes anticipate in many cases peaks of trading by one day or more. In other words, there is a correlation between trading volumes of NASDAQ-100 stocks and the volumes of queries related to the same stocks. The advantage of using real-time data analytics is, of course, that it tells you what is happening right now. Conventional channels for market data involve lags of several days. Google's Research Blog notes that https://theconversation.com/stockmarkettipusegoogletrends13745 3/4 8/18/2016 Stock market tip: use Google Trends Google Trends ... provide a real time report on query volume, while economic data is typically released several days a er the close of the month. Given this time lag, it is not implausible that Google queries in a category like \"Automotive/Vehicle Shopping\" during the rst few weeks of March may help predict what actual March automotive sales will be like when the ocial data is released halfway through April. This work is detailed in the paper Predicting the Present with Google Trends. So how do I make my millions? The work done so far indicates that using tools such as Google Trends and Yahoo! can yield real-time insight into market sentiment, and that this information can be used strategically to devise protable trading strategies. What is needed, though, is ner granularity. If investors could drill down further into the data to discern daily or hourly trends they might well be able to predict a rise or fall in stock prices. It could also give people warning of impending crises. With increasing volumes of data on the internet, there is a clear need for tools that can mine this data and be a window into the zeitgeist. Google Trends, with its access to search data from the most popular search engine, is probably the most powerful such tool currently available. You As A Machine And if you're looking for a safe bet, it is highly likely we will see a lot more action in this eld in the years ahead. Google stock market https://theconversation.com/stockmarkettipusegoogletrends13745 4/4 Topic 8: Reactions of Individuals to Financial Reporting - An Examination of Behavioural Research in Accounting (Adapted from slides written by Craig Deegan to accompany Deegan, 2014, Financial Accounting Theory, 4th edition, McGraw-Hill, Sydney, Australia.) Differentiate between behavioural research and capital markets research Describe and critically evaluate the different methods of undertaking behavioural research in accounting Explain how both CMR and behavioural research may benefit financial accounting and financial reporting decisions Financial Accounting Theory, 4th edition Required reading: Chapter 11 Discussion Questions: 11.8, 11.9, 11.11, 11.13, 11.16, 11.18 Deegan, Behavioural research examines how individuals react to various accounting disclosures Goal of behavioural research is to: describe actual decision behaviour evaluate quality of decisions develop and test hypotheses of the underlying psychological processes (decision making process) Behavioural research uses theories and methodologies from the behavioural sciences/psychology to examine the use of accounting information to make judgements and decisions Behavioural research typically does not make simplifying assumptions about how all individuals behave, unlike economic based theories (which often assume wealth maximization) Behavioural research in accounting has been used to investigate a variety of decision making processes, such as: valuation of market shares by individual analysts lending decisions of loan officers assessment of bankruptcy by bankers or auditors assessment of risk by auditors Behavioural research examines how the presentation of accounting information, in different formats and contexts, impacts upon judgements and decision making by financial report users: For example, the impact of recognition versus disclosure, different accounting methods (e.g. capitalisation versus expense), upon decision making What does behavioural research do? Describes how judgements and decisions are made Determines which factors affect decisions and judgements E.g. Does the presentation of information in graphs or tables affect the use of information? Evaluates the quality of decisions and judgements E.g. Are users more accurate/quicker making decisions with colour graphs or black and white graphs? Examines the underlying psychological processes used to make judgements E.g. How does information load/ data redundancy affect the accuracy/speed of decision making? Suggests solution(s) to improve judgements and decision making E.g. Avoid the use of unnecessary colour in graphs RMIT University2014 6 6 No. Difference Capital Markets Research Behavioural Research 1 Impact Considers aggregate effect on decision making by investors (via share price) Considers effect on decision making by individuals 2 Focus Investors Broad range of users 3 Information Whether information is used by investors in aggregate How information is used by individual decision makers 4 Conducted Before or after method or standard adopted Similarity After method or standard adopted Both examine impact of financial reporting upon decision making Used to explain behavioural research Financial reports are an imperfect representation of the entity Users generate a perspective about the entity through a 'lens' of imperfect cues 'cues' refers to both the information provided, and how and where that information is presented Statistical modelling is applied to determine the weighting (importance) of the various cues (independent variables) to the criterion event of success (dependent variable) Right-hand side models how the individual uses cues to make an ultimate decision about the issue under investigation Left-hand side models the relationship between the actual phenomenon or event (the actual outcome) and the particular cues provided Structure of the Lens Model can be applied to almost any decision-making scheme e.g. lending decision Lens Model explicitly considers inputs (use of cues) the decision making process outputs (ultimate decisions) https://quizlet.com/11677298/adm-advice-giving-and-taking-flash-cards/ At input level - the use of cues: scaling characteristics of individual cues (e.g. ratios vs. gross numbers) methods of presentation (e.g. graphs vs. tables) context (e.g. financial statement recognition vs. note disclosure) At the level of processing the information - decision making process: characteristics of the person making the judgement characteristics of the decision rule At the output or decision level: qualities of the judgement self-insight How and whether particular cues are used in decision making is particularly relevant to the accounting profession If information items in financial statements are not used, then they could be deemed immaterial and therefore do not require disclosure Preparers and regulators are also interested in whether presentation (e.g. in financial statements or in the Notes) impacts on decision making In making predictions of financial returns, analysts are found to acquire earnings and sales information more often than other information (Pankoff & Virgil 1970; Mear & Firth 1987) Studies questioned the provision of current cost information, as subjects relied more on historical cost information (Heintz 1973; McIntyre 1973) Different presentation formats found to influence users' decisions: including bar charts, line graphs, pie charts and tables Moriarity (1979) found students and accountants using Chernoff faces were able to outperform those using ratios in predicting bankruptcy and models of bankruptcy Studies examining decision making by loan officers, based on whether information is incorporated within the financial statements or included as footnotes, found presentation made no difference (Wilkins & Zimmer 1983) Provision of segment information reduced subjects' reliance on past share prices (Stallman 1969; Doupnik & Rolfe 1989) Moriarty (1979): Financial ratios to predict bankruptcy Numerical representation vs. Chernoff faces Changes in ratios depicted by differences in facial features Subjects using Chernoff faces made more accurate predictions than those using numerical values!! Studies have examined how the various cues are weighted (i.e. to what extent do various cues affect the decision made) Judgements have been found to be consistent over time Decision makers also have been found to employ simplifying heuristics when making a decision: a heuristic can be defined as a simplifying 'rule of thumb' a heuristic can simplify quite complex judgements to a much simpler judgement, by only considering some of the relevant factors simplifying rules that take a lot less time may nevertheless generate acceptable predictions or solutions it is useful to know about the use of heuristics - especially by 'successful' judges/decision-makers However, heuristics can result in systematic and severe errors, because they ignore several relevant factors, which should be considered when making judgements and decisions Three main simplifying heuristics have been identified: 1. representativeness 2. anchoring and adjustment 3. availability Decision makers often assess the likelihood of items belonging to a category by considering how similar the item is to the typical member of the category An implication is that the subjects typically ignore the base rate of the item in the population in question: may overstate the number of cases in a particular category subjects tend to ignore the reliability of the data source Individuals make an initial judgement or estimate and then only partially adjust their view as a result of additional information Relates to whether recollections of related occurrence or events can easily come to mind The actual base rates of occurrence of the event are ignored For events which are widely or sensationally reported, there is a tendency to overstate the probability of occurrence Useful to know about heuristics in use: if the heuristic results in inappropriate decisions being made, this tendency can be highlighted and action taken (e.g. additional training provided to decision makers) the successful use of a heuristic by experts could be efficient compared to costly data-gathering and processing novices could then be advised to use the rule of thumb Research has considered how accurate predictions are relative to the actual environmental outcomes: loan officers found to predict bankruptcy fairly regularly (Libby 1975) bankers and accounting students also found to correctly predict bankruptcies (Zimmer 1980) decision makers working in a team can outperform individual decision makers this implies that major decisions should be made by teams of decision makers Deegan, Discussion Question 11.18 (page 562) The International Accounting Standards Board (IASB) is going through a process of revising the Conceptual Framework for Financial Reporting. This process is expected to take a number of years to complete. As part of that work the IASB is addressing 'measurement' issues. Could the IASB use techniques from behavioural accounting research in revising the Conceptual Framework, and if so, how? This form of behavioural research requires subjects to verbalise their thought processes while making decisions or judgements: objective is to examine the decision making process common in auditing research Useful in examining the information searched for, the sequence in which information is used, and amount of time devoted to analysing particular information when making decisions Understanding how judgements are made is important in improving those judgements: E.g. research may reveal particular information is not used when making decisions - decisions makers could be trained to use that information Disadvantages include: the process of verbalising can affect the decision making process a considerable portion of the information utilised by the decision maker may not be verbalised decision makers may provide verbalisations which are parallel but are independent of their actual thought process criticisms of how researchers code and classify the protocol analysis Research examining similar issues have generated conflicting results: difficult to determine causes of inconsistencies could be due to bad research design, measuring the wrong variables, etc. Settings of research studies often different to real-world settings: implications for generalizability of research results to the real-world Very difficult to replicate cues available in the workplace Students often used as surrogates for practitioners Small number of subjects often used At the end of this topic you should be able to: Differentiate between behavioural research and capital markets research Describe and critically evaluate the different methods of undertaking behavioural research in accounting Explain how both CMR and behavioural research may benefit financial accounting and financial reporting decisions. Read: Deegan, Financial Accounting Theory, 4th edition, Chapter 12 Attempt Discussion Questions: Ch 12: 12.1, 12.4, 12.6, 12.7, 12.9, 12.12, 12.16, 12.17 Check your answers against the solutions RMIT University2014 32