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The behavioral valuation apparatus

Vol. 26, Iss. 2, FEBRUARY 2020

Received: 28 November 2019

Received in revised form: 12 December 2019

Accepted: 26 December 2019

Available online: 28 February 2020

Subject Heading: THEORY OF FINANCE

JEL Classification: C9, C92, D81, D90, G02

Pages: 257–269

Bogatyrev S.Yu. Financial University under Government of Russian Federation, Moscow, Russian Federation

Subject The article discusses behavioral valuation tools and focuses on the creation of the behavioral valuation methodology.
Objectives The study reveals mechanisms for setting behavioral valuation indicators.
Methods I prove it is reasonable to apply the classical theory of valuation to set behavioral valuation tools. The article presents elements and formulae of the classical valuation theory and provides mechanisms for setting respective tools.
Results Mood measurement in news is the backbone of analytical tools described in the article. As part of the mood measurement in news, researchers process all news relating to analyzable companies and measure it by seven-grade scale. I articulated the behavioral beta measurement theory in accordance with the behavioral pricing theory of Hersh Shefrin and Meyer Statman. The article unveils the possible effect of using analytical materials, which complement the decision-making process concerning an investment strategy in the most distant retrospect. I showcase how the fundamental analysis and valuation may help you record a quotation per each day while catching what opinion an analyst had about the quotation at the same point of time, what emotional environment surrounded the pricing process within the analyzable period of time.
Conclusions and Relevance The article presents the method to set behavioral valuation tools, being a step towards pricing based on behavioral valuation. The article showcases the relationship of behavioral valuation tools and classical valuation tools and new valuation models. I devised the framework for practical computations. The findings apply to valuation, corporate finance, public and municipal finance, tax issues, stock exchanges. It is especially important to use behavioral valuation tools during the instability and crisis, change in the market paradigm, market shifts, changes in the return and volatility of financial instruments. Behavioral valuation tools supplements and extends the conventional tools used in traditional finance, makes cost management decisions more informed.

Keywords: behavioral finance, behavioral valuation, irrational beta, beta coefficient, behavioral discount rate


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