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Does Price Influence Assessment of Fundamental Value? Experimental Evidence

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  • Sylvain Marsat

    (CRCGM - Centre de Recherche Clermontois en Gestion et Management - UdA - Université d'Auvergne - Clermont-Ferrand I - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand)

  • B Williams

    (CRCGM - Centre de Recherche Clermontois en Gestion et Management - UdA - Université d'Auvergne - Clermont-Ferrand I - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand)

Abstract

Assessing the fundamental value of a firm is a difficult task. Theoretically, the market price is exogenous and should not be used in the estimation. We performed a simple experiment to pinpoint whether price is used in fundamental value calculation. Subjects were given similar information on a firm. In the first/control situation, no price was submitted. In the second situation, the actual price was submitted to them. In the third one, a manipulated, overvalued price was provided. We find that the price provided, whatever it is, proves to have a clear impact on the subjects' estimations. This is consistent with the anchoring-and-adjustment hypothesis of fundamental assessment and has implications for a better understanding of financial bubbles.

Suggested Citation

  • Sylvain Marsat & B Williams, 2013. "Does Price Influence Assessment of Fundamental Value? Experimental Evidence," Post-Print hal-02156599, HAL.
    • Handle: RePEc:hal:journl:hal-02156599
    DOI: 10.1080/15427560.2013.848866
    Note: View the original document on HAL open archive server: https://hal.science/hal-02156599
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    References listed on IDEAS

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    2. Pereira Reichhardt, Joaquín & Iqbal, Tabassum, 2014. "Investment Decisions: Are we fully-Rational?," MPRA Paper 57686, University Library of Munich, Germany.

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