Fair value accounting introduces volatility into financial statements through the following channels:   Volatility on account of changes in underlying economic parameters. For instance if interest rates increase, the fair value of bonds reduces and vice versa.   Volatility produced due to measurement errors and/ or changing views regarding the economic prospects through the business cycle.
Fair value measures generally represent the present value of a stream of expected cash flows. Very often the determination of expected cash flows involves statistical techniques which may have some amount of estimation errors as well as other errors.   Volatility arising on account of using a mixed measurement model i.e.