Events

Professor Christopher Polk
Professor of Finance
Department of Finance
The London School of Economics and Political Science

We introduce discounted alpha—a novel framework for equity valuation. By correcting market prices rather than discounting long-horizon cash flows, our approach delivers lower-variation, better-performing estimates of a stock’s value. Applying our estimates, we find that private equity funds capture substantial CAPM misvaluation, both initially at buyout and subsequently at exit, and that fundamental buy-and-hold funds tilt toward characteristics that predict underpricing but not short-term alphas. Furthermore, biased beliefs embedded in analyst estimates appear to be an important driver of model-implied price distortions. Yet despite these pockets of misvaluation, firm equity values are “almost efficient” by Black’s (1986) definition.