Asset price and valuation: A comprehensive review of theoretical frameworks, methodologies and empirical evidence

Abstract

Background: Accurate asset valuation is crucial for informed decision-making in finance.Purpose: This paper provides a comprehensive review of asset price and valuation, encompassing theoretical frameworks, methodologies, and empirical evidence.Methodology: We examine the discounted cash flow (DCF) model, capital asset pricing model (CAPM), and arbitrage pricing theory (APT) as foundational frameworks for asset valuation. We also discuss relative and absolute valuation methodologies, highlighting their applications and limitations.Findings: A thorough analysis of empirical evidence reveals the impact of macroeconomic variables, firm-specific characteristics, and market sentiment on asset prices. Numerical examples and case studies illustrate the practical application of asset valuation techniques in real-world scenarios.Contribution: This study contributes to the existing literature by providing a holistic understanding of asset price and valuation, informing investors, corporations, and financial institutions in their decision-making processes.