Year: 2025
Type: article
Abstract: This study explores the relationship between stock prices and a company’s intrinsic value by applying a comprehensive mathematical and empirical framework. Key financial models-including the Discounted Cash Flow (DCF) model, the Capital Asset Pricing Model (CAPM), and the Fama-French Three- and Five-Factor Models-are utilized to estimate intrinsic value and examine deviations in market pricing. While the Efficient Market Hypothesis (EMH) suggests that stock prices fully reflect all available information, real-world data often reveal consistent mispricing driven by behavioral biases, investor sentiment, and practical constraints on arbitrage. Using Apple (AAPL) as case studies, the paper estimates intrinsic values via DCF and analyzes price deviations using time-series econometric techniques and regression diagnostics. Findings show that mispricing can persist over time, and prices tend to correct gradually rather than instantly, implying semi-strong market efficiency. The study offers valuable insights into the limits of rational arbitrage, the dynamic nature of market corrections, and the influence of noise traders in modern financial markets.
Source: Theoretical and Natural Science
Author: Churuo Xia
Institution: Shrewsbury College
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W4412495033