The current literature on the value relevance of accounting information primarily proxies for stock values using transaction prices, a practice that some believe may mislead value relevance research conclusions. Without assuming that prices are equivalent to intrinsic values, this paper assesses the information content found in equity prices in addition to that in book values and reported earnings. We obtain two cointegration relations from the residual income valuation model and estimate trivariate error-correction models with aggregate stock market data from Taiwan. The long-run causality and common factor analyses reveal that prices have lesser fundamental information content than book values, indicating that the quarterly prices may contain sizable noise trading elements. The short-run analysis conversely suggests that prices exert a stronger causal influence compared to book values. Such a short-run misjudgment of the information role of price versus book value appears consistent with the literature indicating that investors are overconfident about their private information but underplay the value relevance of public information.
