I am confused by the relation between stocks market prices and fundamental (or intrinsic) values stated by Efficient Market Hypothesis. How these deviates regarding to efficient market theory or are these the same according to EMH?
Why I am asking this is because among the literature, there can be found two kind of statements.
This is the very general statement that can be found from here and there:
Investopedia: This principle is called the Efficient Market Hypothesis (EMH), which asserts that the market is able to correctly price securities in a timely manner based on the latest information available. Based on this principle, there are no undervalued stocks to be had, since every stock is always trading at a price equal to its intrinsic value **.
The another one what can be found from academic literature and books, states:
Fama (1965) In other words, in an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value.
and line with previous, other source states :
Market efficiency does not require that the market price be equal to true value at every point in time. All it requires is that errors in the market price be unbiased, i.e., that prices can be greater than or less than true value, as long as these deviations are random
I also saw algebraig illustration where it was shown that the market price estimates the fundamental value of security better any individual trader can estimate it. (with certain assumptions)
So the question is, why here and these is stated, that in efficient market, the market price of stock is trading at a price equal to fundamental (or intrinsic) value? Which is right?
And if the market price is at the best good estimate of intrinsic value, how can it be stated that in efficient market there are not under- or overvalued stocks, if the market price is only best estimate of instrinsic value?
I am not very familiar with algebraig definitions, but some kind of clarification behind this issue would be appreciated.
Thank you for clarification.