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In terms of market value, you can say a financial asset was overvalued at time X if it later decreases a lot in vale, and undervalued the other way around.
by danmaz74 9y ago
In terms of market value, you can say a financial asset was overvalued at time X if it later decreases a lot in vale, and undervalued the other way around.
- TekMol 9y agoWhat if it does both as most assets do? Apple was worth $500B in 2012 and $300B in 2013. Does that mean it was overvalued in 2012? Or was it undervalued in 2012 because it is worth $600B in 2014?
- danmaz74 9y agoMost assets do both because most assets, most of the time, aren't really/severely* under- or over-valued. But in general, a moving average can help in determining when they were under/over valued. As a counter-example, an example of "extremely overvalued" in my mind would be Enron before the fall. * https://en.wikipedia.org/wiki/Sorites_paradox https://en.wikipedia.org/wiki/Sorites_paradox EDIT: not so much "determining", but "defining" - you can only know it ex-post...