“Intrinsic Value vs. Market Value: An Empirical Mean-Reversion-Based Study”

Hassan El Ibrami, Saidatou Dicko

Abstract


The market very often overestimates financial assets because of speculation. This makes it difficult to determine the proper value of a company. We believe that intrinsic value should be used to make an accurate assessment. Hence, financial statements data should be used to determine the value of a company. The main purpose of this paper is to measure the performance of a mean reversion structural model in pricing shares. The model was developed by El Ibrami and Naciri (2012). The market is used as a benchmark to determine the performance of the model analyzed. The results of the study show that the market overestimated mean reversion companies by about 10% and remain consistent throughout the industries. Keywords: Mean reversion, Equity, EBIT, Volatility.

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DOI: http://dx.doi.org/10.5296/ijafr.v2i2.2703

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