Just how reliable are market prices?
Especially with recent seemingly irrational volatility in the markets, I was wondering just how useful marking assets to market is. If there's trillions of dollars worth of treasuries in the market or billions of dollars with of an equity, just how useful/accurate is it to mark the value of those assets based on what trades at the moment, which accounts for only a small fraction of the total assets. For example, microsoft is a 220 billion market cap stock and a billion or two trades on the market, should all 220 billion of the stock be marked at what was recently traded?
Market Cap is actually equal to stock price or current stock price * outstanding shares.
Mark to Market is useful in situations like you described. The problem arises when you are developing an asset. Enron used the "mark to model" method, which ended so well for us, but generally with illiquid securities it is more beneficial/truthful to use Mark to model.
Depends on the liquidity of the pertaining asset. I say mark to model is introduces a whole new dimension of risk. Just look at CDO/MBS pricing in 2008.
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