Fundamental analysis determines that the price of a firm's stock is too low,given its intrinsic value.The information used in the analysis is available to all market participants,yet the price does not seem to react.The stock does not trade on a major exchange.What concept might explain the ability to produce excess returns on this stock?
A) January effect
B) Neglected firm effect
C) P/E effect
D) Reversal effect

Question

Quizplus · Accepted Answer

The neglected firm effect suggests that stocks that are not widely followed or traded on major exchanges may be undervalued, even if their intrinsic value is higher than their current market price. As a result, investors who are able to identify and purchase these undervalued stocks may be able to produce excess returns.

Fundamental Analysis Determines That the Price of a Firm's Stock