Achieving Fair Value: Managing Life On The Public Markets
For the past forty years we have all lived with the assumption that markets are perfect – that the process of arbitrage between investors trading shares would iron out any temporary misvaluations. If over valuation exists, enough astute investors will short the stock and drive it down. If undervalued, the same shrewd investors will spot the opportunity and buy in. The effect, amplified across the market as a whole, should be that firms are on average correctly valued and that periods of misevaluation are short and quickly corrected. Managerially this hypothesis is a very comfortable one. It means that the market value of the company will reflect its fundamental value.
Scott, M. (2005) Achieving Fair Value: Managing Life on the Public Markets, CriticalEYE REVIEW: The Journal of Europe's Centre for Business Leaders. www.criticaleye.net, Jun.-Aug.