Explain why market prices will always converge to their fundamental value even when we disregard the...

Explain why market prices will always converge to their fundamental value even when we disregard the efficient market hypothesis.

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Expert Solution

Market price of a company is always determined by the fundamentals of the company and even if we disregard the theory of the Efficient market hypothesis, the market price of a company will always be determined by the shareholders through regular events and news about the company and different micro data, so, market price of a company is always decided by relevant movement in its fundamentals .

It is often seen that the companies are always dealing with various fundamental changes in their structure as for example, they will be reporting the quarterly earnings and their share price always reflecting their earnings as as this is is affecting the overall structure of the company in the long run, so there would be buying or selling on these event-based news of the company.

There is micro factors of the company playing an important role in movements of its share price because various participants in market always tend to re adjust the price of the company to its actual fundamental value because markets are always trying to discount the actual scenario.

jeff jeffy answered 1 year ago

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