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Key topics
 The big picture
 Stock price formation
 Fundamental value analysis
International corp. governance

Incentive mechanisms
 Decision system
Performance monitoring
 Incentive based compensation
 Bankruptcy system
 Ownership structure
 Creditor structure
 Capital structure
 Market for corporate control
Labor market competition
Product market competition

Related topics
Transaction cost economics
 Positive economics



Stock price formation

Introduction: Stock prices are not efficient in the sense that they are the best possible estimate about company value. If that was true nobody would care to make costly analysis trying to determine the fundamental value of the company and if nobody did that then surely the stock price would not be priced at all but would drift completely arbitrarily without any relation to its fundamental value. We know neither of these two scenarios is true. The stock price that can be observed in the stock market is not an accurate measurement of the firm's fundamental value nor is it completely unrelated to this value. The following paper and exhibitions present a simple theory to explain how stock prices are formed in different kinds of market situations.


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