How Quickly Do Equity Prices Converge to Intrinsic Value?
Dennis R. Capozza
University of Michigan, Stephen M. Ross School of Business
Ryan D. Israelsen
Indiana University - Kelley School of Business - Department of Finance
November 11, 2010
Journal of Investment Management, 2010
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.
Keywords: Momentum, Reversion, Equity Returns, Predictability, Intrinsic Value
JEL Classification: G00Accepted Paper Series
Date posted: November 14, 2010
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.360 seconds