In the short run (i.e., a static viewpoint), stock price reflects the weighted average opinions of all investors in the market. In the long run (i.e., a dynamic viewpoint), stock price is determined by the opinions of marginal investors in the market. While different investors may have different opinions about the value of the same stock, there is only one price for the same stock. In an efficient market, the stock price may deviate from marginal investors' valuation for a prolonged period but eventually the price will converge to the value.
In the short run (i.e., a static viewpoint), stock price reflects the weighted average opinions of all investors in the market. In the long run (i.e., a dynamic viewpoint), stock price is determined by the opinions of marginal investors in the market. While different investors may have different opinions about the value of the same stock, there is only one price for the same stock. In an efficient market, the stock price may deviate from marginal investors' valuation for a prolonged period but eventually the price will converge to the value.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 12QTD
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