The price of Palm's stock went from its all-time high of $165 on March 2, 2000,...

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The price of Palm's stock went from its all-time high of $165 on March 2, 2000, to $0.60 in August 2002. The general evidence in respect to fundamental value is that the executives of many Internet firms did not believe their firms were overvalued at the time of their IPO's. Some years after Palm's IPO, former 3Com executives were asked whether in retrospect 3Com had sold overvalued shares to the public. They responded saying that they viewed Palm's shares as being overvalued relative to fundamentals, but undervalued at a $38 offer price relative to what the market was willing to pay in the aftermarket. As to being overvalued relative to fundamentals, 3Com executives stated that they had the responsibility of maximizing value for their current shareholders at the time, and that it would be irresponsible not to do so, despite the likelihood that the return on Palm stock would be low in the long term. 1. Discuss whether any biases apply in regard to the Palm IPO to: a. the analysts b. investors c. management Specifically, identify the bias you think applies to the actor, discuss what the research says about the bias in a similar context and then tie in with the behaviour of the actor. You need to convince me about the validity of your association between your claim of a biases being present and/or exhibited by any actor above. (3 marks) 2. Discuss whether Palm and 3Com were efficiently priced on Palm's first day of trading. To properly answer this question, you need to do research and provide both quantitative and qualitative findings. (4 marks) 3. Analyze the assessment of Palm made by analyst Paul Sagawa. He is an analyst but his point of view makes him a "victim" of a some very specific biases. Identify them and explain. The price of Palm's stock went from its all-time high of $165 on March 2, 2000, to $0.60 in August 2002. The general evidence in respect to fundamental value is that the executives of many Internet firms did not believe their firms were overvalued at the time of their IPO's. Some years after Palm's IPO, former 3Com executives were asked whether in retrospect 3Com had sold overvalued shares to the public. They responded saying that they viewed Palm's shares as being overvalued relative to fundamentals, but undervalued at a $38 offer price relative to what the market was willing to pay in the aftermarket. As to being overvalued relative to fundamentals, 3Com executives stated that they had the responsibility of maximizing value for their current shareholders at the time, and that it would be irresponsible not to do so, despite the likelihood that the return on Palm stock would be low in the long term. 1. Discuss whether any biases apply in regard to the Palm IPO to: a. the analysts b. investors c. management Specifically, identify the bias you think applies to the actor, discuss what the research says about the bias in a similar context and then tie in with the behaviour of the actor. You need to convince me about the validity of your association between your claim of a biases being present and/or exhibited by any actor above. (3 marks) 2. Discuss whether Palm and 3Com were efficiently priced on Palm's first day of trading. To properly answer this question, you need to do research and provide both quantitative and qualitative findings. (4 marks) 3. Analyze the assessment of Palm made by analyst Paul Sagawa. He is an analyst but his point of view makes him a "victim" of a some very specific biases. Identify them and explain.

Answer rating: 100% (QA)

Biases in regard to the Palm IPO a The analysts One potential bias that could apply to analysts in this situation is confirmation bias Analysts may ha... View the full answer