Abstract
It would be difficult for any informed financial market observer to overlook the fact that market prices often exhibit substantial, and sometimes extreme, deviation from perceived ‘fundamental values.’ During some periods, this deviation appears to be more extreme than in others. Anecdotally, it seems that even staunch believers in investing according to fundamental information have strayed from that strategy in preference for riding the market's momentum. In this paper, we revisit models to approximate fundamental value, and compare these fundamental values to market values. We test for differences using CRSP and Compustat data from 1962 to 2002 for different industry classes of stocks. Of particular interest to the study is the magnitude of deviation and behavioral differences by industry classification.
Recommended Citation
(2006)
"Textbook Treatment of the Constant Growth Valuation Model: An Assessment of Congruence with Reality,"
Journal of Economics and Finance Education: Vol. 5:
Iss.
2, Article 4.
Available at:
https://scholarship.rollins.edu/jefe/vol5/iss2/4
