If a stock's market price exceeds its intrinsic value as seen by the marginal investor, then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.

Question

Quizplus · Accepted Answer

This statement is in line with the principle of the efficient market hypothesis, which suggests that the market price of a stock will be determined by the available information and the expectations of the marginal investor. If the market price exceeds the investor's estimate of the intrinsic value, then they will sell to capitalize on the perceived overvaluation, which will bring the price down to a level that reflects the true value of the stock.

If a Stock's Market Price Exceeds Its Intrinsic Value as Seen