14.9 The application of efficient market hypothesis in business valuation Flashcards
1
Q
How do investors use the efficient market hypothesis in business valuation?
A
EMH says that in a perfect market the stock price always reflects the fair value of a business. However, in reality, most markets are only “Semi strong” and therefore investors can use estimate the intrinsic value of shares (based on analysis) and compare it to the market price to determine whether shares are over- or under-valued.
