  The aim of this study is to investigate quantitatively whether share prices
deviated from company fundamentals in the stock market crash of 2008. For this
purpose, we use a large database containing the balance sheets and share prices
of 7,796 worldwide companies for the period 2004 through 2013. We develop a
panel regression model using three financial indicators--dividends per share,
cash flow per share, and book value per share--as explanatory variables for
share price. We then estimate individual company fundamentals for each year by
removing the time fixed effects from the two-way fixed effects model, which we
identified as the best of the panel regression models. One merit of our model
is that we are able to extract unobservable factors of company fundamentals by
using the individual fixed effects.
  Based on these results, we analyze the market anomaly quantitatively using
the divergence rate--the rate of the deviation of share price from a company's
fundamentals. We find that share prices on average were overvalued in the
period from 2005 to 2007, and were undervalued significantly in 2008, when the
global financial crisis occurred. Share prices were equivalent to the
fundamentals on average in the subsequent period. Our empirical results clearly
demonstrate that the worldwide stock market fluctuated excessively in the time
period before and just after the global financial crisis of 2008.

General Finance;Pricing of Securities;Risk Management;Statistical Finance