How can you tell if a stock is truly undervalued or overpriced?

In this episode, we break down groundbreaking research on the Price Wedge Shock (WS)—a dynamic measure that captures when a stock’s price deviates sharply from the market’s implied value of its fundamentals. Discover how WS:

- Identifies mispricing by comparing current prices to a cross-sectional market benchmark.

- Generates significant returns in long-short portfolios, even after adjusting for risk factors.

- Thrives in corners of the market with limits to arbitrage (e.g., small caps, illiquid stocks).

- Links to earnings surprises and investor sentiment, offering clues about market inefficiencies.

Whether you’re an investor or a finance enthusiast, this deep dive challenges traditional notions of valuation and explores a fresh, market-relative approach to spotting opportunities. Spoiler: The "efficient market" might not be so efficient after all.

Find the full research paper here: https://community.quantopian.com/c/community-forums/measure-mispricing-with-price

For more quant-focused content, join us at ⁠⁠⁠⁠https://community.quantopian.com⁠⁠⁠⁠. There, you can explore a wealth of resources, connect with fellow quants, engage in insightful discussions, and enhance your skills through our extensive range of online courses.

Quant Radio is an AI-generated podcast, intended to help people develop their knowledge and skills in Quant finance. This podcast is not intended to provide investment advice.