Relative Versus Fundamental Valuation: An Empirical Study of US Biotechnology Firms Around the 2000 High-Tech Bubble

Dzung Viet Nguyen

International Journal of Financial Research, 2020, vol. 11, issue 6, 226-236

Abstract: This study is related to the issue of whether the stock market reflects the fundamental value of high-tech firms around the 2000 high-tech bubble. We extend the literature on firm valuation by exploiting the conceptual difference between intrinsic and relative values. We apply the residual income model and valuation multiples to estimate these two values respectively and make a comparison for a sample of biotechnology firms. Under realistic assumptions, it seems that estimated fundamental values of these firms fail to be reflected by the stock market. Their market valuation is rather based on relative value for both periods before and after the fall of high-tech stocks.

Keywords: intrinsic value; relative value; residual income model; valuation multiples; biotechnology firms (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:jfr:ijfr11:v:11:y:2020:i:6:p:226-236

DOI: 10.5430/ijfr.v11n6p226

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