Main Article Content

Abstract

Investment in stock market is not only risky, but also tedious. Investors look at the stock price movements carefully to take wise decisions on investments. The implication of an upward or downward movement in stock price usually depends upon the true value of the stocks. The true value of a stock is generally represented by its intrinsic value. It is the actual value of the stock and constitutes the true worth of it. Intrinsic value can be calculated based on the fundamentals of the stocks. As the market is expected to be efficient and at the same time risky, the expected return estimated through Capital Asset Pricing Model (CAPM) can be represented as the benchmark for analysing the market return. Theoretically, stock prices should reflect the fundamental value of the stock, in such situations where investors behave rationally. However, the stock prices do deviate from the fundamental or intrinsic value. The stock prices tend to be either more than intrinsic value or less than intrinsic value leading to overvaluation or undervaluation of stocks respectively, which denotes mispricing. This mispricing proves the irrational behavior in the market and hence is a behavioral anomaly. But in the present study, an attempt is made to analyse the mispricing of stocks based on comparing the expected rate of return as per CAPM and the actual market return. The study was carried out with the market returns of the top actively traded twenty stocks listed in BSE. The results revealed that there is mispricing in the Indian stock market.

Article Details