Equity valuation models based on dividends,cash flows,and earnings have been the topic of many theoretical and empirical research studies in recent years.All of the following are true regarding these studies except:
A) Share prices in the capital markets generally correlate closely with share value.
B) Share prices do not always equal share values.
C) Temporary deviations of price from value occur.
D) Unexpected changes in earnings, dividends, and cash flows do not correlate closely
With changes in stock prices.

Question

Quizplus · Accepted Answer

Unexpected changes in earnings, dividends, and cash flows do have a significant impact on stock prices, as investors use this information to adjust their valuations of the company. Therefore, choice D is false. Choices A, B, and C are true, as equity valuation models can provide a useful framework for understanding how stock prices relate to underlying share value, but there can be temporary deviations due to market sentiment or other factors.

Equity Valuation Models Based on Dividends,cash Flows,and Earnings Have Been