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Does intrinsic value still have a role in capital market pricing?

Author

Listed:
  • Iván Bélyácz

    () (University of Pécs Faculty of Economics, Pécs, Hungary)

Abstract

In this study I make an effort to prove that market price signals are less subject to individual behavioural distortion than those sharing the idea of prevailing irrational investor behaviour, and that intrinsic value plays a major role in the market price. With stock market bubbles, the balance between market and intrinsic value temporarily splits: during a crisis many stocks become overvalued, their prices being higher than their intrinsic value. Furthermore, among the reasons for market anomalies short-termism can be mentioned which indirectly leads to misjudgement of the underlying risk as investors pay less attention to low probability outcomes.

Suggested Citation

  • Iván Bélyácz, 2012. "Does intrinsic value still have a role in capital market pricing?," Society and Economy, Akadémiai Kiadó, Hungary, vol. 34(1), pages 95-113, April.
  • Handle: RePEc:aka:soceco:v:34:y:2012:i:1:p:95-113
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    More about this item

    Keywords

    intrinsic value; market value; capital market pricing; investor behaviour; overvaluation; undervaluation;

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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