Abstract

http://ssrn.com/abstract=1707580
 


 



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

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.

Keywords: Momentum, Reversion, Equity Returns, Predictability, Intrinsic Value

JEL Classification: G00

Accepted Paper Series


Not Available For Download

Date posted: November 14, 2010  

Suggested Citation

Capozza, Dennis R. and Israelsen, Ryan D., How Quickly Do Equity Prices Converge to Intrinsic Value? (November 11, 2010). Journal of Investment Management, 2010. Available at SSRN: http://ssrn.com/abstract=1707580

Contact Information

Dennis R. Capozza (Contact Author)
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-1269 (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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