New Horizons of Behavioral Valuation

Abstract

The study described in this article seeks to solve the problem of investment decisions in the current environment, where investor irrationality comes to the front and blinds traditional classical analytical tools. During the post-crisis period, it becomes a problem not only for Russian valuation analysts but globally as well. The present study uses a behavioral finance methodology to solve this problem. To illustrate the solution, we used the discounted cash flow valuation techniques on a huge amount of on-sale Russian businesses and then applied quantitative financial solution methods to process multiple results. TOPICS: Private equity, factor-based models, developed markets Key Findings • The article provides strict, consistent and interconnected analytical instruments to measure how sentiments have an influence on prices and lead to different interpretations of risks and returns in behavioral finance theories. • The methodology described in the article shows how sentiment is ref lected in the stochastic discount factor. • The article illustrates particular M&A market methods for implementation of the stochastic discount factor-based behavioral pricing theory.