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 correlate closely with changes in stock prices, so statement D is not true. Statements A, B, and C are generally accepted as true in the realm of equity valuation studies.

Equity Valuation Models Based on Dividends, Cash Flows, and Earnings