Uncovering that mispricing may require specialised knowledge that few investors possess, creating profitable barriers to entry.
And the reason for that mispricing is because of lack of knowledge of commodity MLPs.
Much of this mispricing of exports and imports should cancel out, but probably not all.
Stock market mispricing induces the controlling shareholder to sell overpriced equity, subsequently diverting resources to his benefit.
FORBES: Do Inefficient Stock Markets Drive Bad Corporate Governance?
We will see (if markets are allowed to work) the mispricing of U.S. real estate being corrected for some time.
They may, however, be mispricing risk just to get the business, gambling with the retirement funds of others.
Other academics believe the value premium is derived from securities mispricing resulting from erroneous growth assumptions among investors.
The scope for agency problems is high for these kinds of subsidiaries, so more mispricing is required to support them.
FORBES: Do Inefficient Stock Markets Drive Bad Corporate Governance?
The idea that stock mispricing supports the creation of ownership structures prone to agency problems has important implications for corporate governance regulations.
FORBES: Do Inefficient Stock Markets Drive Bad Corporate Governance?
One theory is based on the presumption of higher risk in value stocks and the other is based on mispricing of securities.
The second proposes that market prices are often wrong and that it is possible to consistently outperform by uncovering and exploiting this mispricing.
On one tape, revealed to FORBES by former MMAR employee William Fincher, two employees discuss "mispricing" the securities in a Louisiana pension fund's portfolio.
Reviving important non-bank funding sources, such as securitisation, is essential, even if its huge expansion in the credit boom led to the mispricing of risk.
We like all MLPs and we invest across the asset class, but when we looked at commodity MLPs we really saw a mispricing within the asset class.
That leads to investor misconceptions and mispricing in the markets.
FORBES: Fed Should Sell Some Gold To Prevent 'Run On The Bank'
Beyond the aforementioned attractiveness of ICON as a standalone company, we feel that the market is currently severely mispricing ICON and that this represents substantial upside potential in the near term.
In his remarks to to the Senate panel on Thursday, Bernanke also hinted that the Fed's regulatory oversight of the banking system is spotty--a problem that led to Wall Street's mispricing of risk in mortgage-related securities.
However, profiting from the mispricing of risk in multiple-currency financial derivatives, or from the fact that a particular supermarket chains are undervalued, are harder for people outside the enclaves of Wall Street or the City of London to understand.
FORBES: "Villains" of Financial Crisis Wrestle with Misperceptions
Daniel Gore of Orthogonal Partners, a firm that specialises in the area, says the aim is to find managers who are inventive in fields that are not congested by existing investors and in markets that may suffer from mispricing.
Criticizing the compensation packages of JPMorgan's Dimon and his senior associates might be popular with voters, but regulators would be better off focusing on the source of the problem -- the mispricing of government guarantees that create perverse risk incentives in the first place.
Motivated by the growing literature studying the effects of stock market mispricing on firm behaviour (see for example Stein 1996, Shleifer and Vishny 2003, and Baker 2009), we develop a simple framework for thinking about how stock market mispricing can offset agency costs and induce controlling shareholders to raise outside equity.
FORBES: Do Inefficient Stock Markets Drive Bad Corporate Governance?
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