In this study I make an effort to prove that market price signals are less subject to individual behavioural distortion than those sharing the idea of prevailing irrational investor behaviour, and that intrinsic value plays a major role in the market price. With stock market bubbles, the balance between market and intrinsic value temporarily splits: during a crisis many stocks become overvalued, their prices being higher than their intrinsic value. Furthermore, among the reasons for market anomalies short-termism can be mentioned which indirectly leads to misjudgement of the underlying risk as investors pay less attention to low probability outcomes.
Bachelier, L. (1900): Theory of Speculation (translated by James Boness). In: Cootner, P. H. (ed.) (1964): The Random Character of Stock Market Prices. Cambridge: MIT Press.
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