The price at which an asset would be purchased or sold in an open and competitive market setting. Put another way, it is the highest price a buyer would pay and the lowest price a seller would accept for an asset in normal market conditions. However, market value differs from market price in that market value is the true underlying value of an asset not the price at which a transaction is made. In informationally inefficient markets or abnormal market conditions, prevailing market prices don’t reflect true underlying value.
In the context of securities, market value stands for the current quoted price at which investors would buy or sell a security (stock, bond, etc.) at a specific time. In this sense, market value and market price denote the same meaning. However, market value is not the same as book value because the former tends to fluctuate with market conditions and expectations, and takes into account future growth potential, while the latter is a static measure of value that recognizes the price of an asset at a given point in time (which is the time of trade), once and for all. Investors use market value against the book value benchmark to determine whether a security is a “good buy” or a “good sell”, i.e. whether it is undervalued or overvalued.
Market value may also refer to the market capitalization of a firm plus the market value of its debt.
Comments