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Relative Versus Fundamental Valuation: An Empirical Study of US Biotechnology Firms Around the 2000 High-Tech Bubble

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  • Dzung Viet Nguyen

Abstract

This study is related to the issue of whether the stock market reflects the fundamental value of high-tech firms around the 2000 high-tech bubble. We extend the literature on firm valuation by exploiting the conceptual difference between intrinsic and relative values. We apply the residual income model and valuation multiples to estimate these two values respectively and make a comparison for a sample of biotechnology firms. Under realistic assumptions, it seems that estimated fundamental values of these firms fail to be reflected by the stock market. Their market valuation is rather based on relative value for both periods before and after the fall of high-tech stocks.

Suggested Citation

  • Dzung Viet Nguyen, 2020. "Relative Versus Fundamental Valuation: An Empirical Study of US Biotechnology Firms Around the 2000 High-Tech Bubble," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(6), pages 226-236, December.
    • Handle: RePEc:jfr:ijfr11:v:11:y:2020:i:6:p:226-236
    DOI: 10.5430/ijfr.v11n6p226
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    References listed on IDEAS

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