Abstract

http://ssrn.com/abstract=1357841
 
 

References (21)



 


 



How Quickly do Equity Prices Converge to Intrinsic Value?


Dennis R. Capozza


Ross School of Business, University of Michigan

Ryan D. Israelsen


Indiana University - Kelley School of Business - Department of Finance

March 11, 2009


Abstract:     
This research hypothesizes that in markets where information costs, transactions costs and the economic impact of information can vary widely, we should expect both significant predictability and systematic variation in the predictability. Controlling for other factors, we find that on average, 15-30% of the difference between the stock price and the estimated intrinsic value is removed in a year. We document that levels of predictability vary with firm characteristics like leverage, size and number of analysts. Momentum is stronger for larger firms with more analysts. Reversion to the intrinsic value is greater for smaller firms with more analysts.

Number of Pages in PDF File: 19

Keywords: Equity prices, momentum, reversion

JEL Classification: D80, D84, D46, G12, G24, G14


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Date posted: March 12, 2009  

Suggested Citation

Capozza, Dennis R. and Israelsen, Ryan D., How Quickly do Equity Prices Converge to Intrinsic Value? (March 11, 2009). Available at SSRN: http://ssrn.com/abstract=1357841 or http://dx.doi.org/10.2139/ssrn.1357841

Contact Information

Dennis R. Capozza (Contact Author)
Ross School of Business, University of Michigan ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
734 995 7271 (Phone)
734 629-0635 (Fax)
Ryan D. Israelsen
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

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References:  21

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