IMPROVING THE MECHANISM FOR STOCK PRICE FORMATION IN THE STOCK MARKET: A MIXED APPROACH BASED ON GLOBAL AND LOCAL CONTEXTS

Аннотация

The article examines the theoretical and empirical aspects of stock price formation, taking into account valuation models (DCF, CAPM, APT), as well as the influence of market factors (volatility, liquidity) and institutional context (regulation, role of exchanges, transparency of information). The analysis covers global markets (USA, EU) and the market of the Republic of Uzbekistan. Examples of significant events («dot-com bubble» 2008 financial crisis, 2020 COVID-19 crisis, 2010 flash crash) illustrate price distortions. Recommendations are being put forward to improve the efficiency of the price formation process, including increasing transparency, implementing consolidated transaction data, and improving trade rules. Keywords: stock price formation, market efficiency, behavioural finance, hybrid pricing model, financial markets, Uzbekistan stock exchange, capital market development, investor psychology, institutional reform, global stock markets. Introduction. The effectiveness of the stock market is largely determined by how quickly and accurately the prices of shares reflect the real (fundamental) value of companies. In the current conditions of technological development and market globalization, improving the mechanisms for price disclosure and quotation formation is becoming particularly important. Thus, in 2024, the EU adopted new MiFID II/MiFIR rules aimed at increasing market transparency: unified consolidated transaction feeds are being introduced so that investors have access to up-to-date data on prices and volumes across the European Union [1]. In Uzbekistan, at the end of 2024, the integration of the Tashkent Exchange’s infrastructure with the Bloomberg 130 SCIENCE SHINE INTERNATIONAL SCIENTIFIC JOURNAL Issue 11(46), Volume 1 | ISSN 3030-377X | 25.05.2025 platform was completed - now global investors can receive real-time data on the trading of Uzbek stocks and bonds. According to NAPP officials, this should «overcome barriers and create a dynamic, stable, and competitive capital market». Simultaneously, in the US and EU markets, regulators are reviewing trading practices: for example, a ban on «Payment for Order Flow» in the EU has been introduced, which is designed to eliminate conflicts of interest between brokers and improve pricing. Thus, regulatory and technological development tools emphasize increasing the transparency and effectiveness of price formation processes. The purpose of the research is to provide a comprehensive analysis of the mechanisms of stock price formation, taking into account theoretical models, empirical facts, and institutional conditions; on this basis, to formulate recommendations for their improvement. For this, a theoretical approach (assessment models, CAPM, APT, etc. ) is combined with an empirical analysis of the dynamics of quotations and volatility, as well as a detailed analysis of events leading to significant price deviations. Special attention was paid to the comparison of developed US/EU markets and the young market of Uzbekistan. Literature Review. The classical theory of stock pricing is based on two approaches. The first is future cash flow discounting (DCF), where the value of a share is estimated as the present value of the expected dividends or free cash flows of the firm. The DCF model requires reliable growth forecasts and discount rates, but the results are very sensitive to these assumptions. The second approach is capital assets valuation models. The basic CAPM (William Sharpe, John Lintner) states that the expected return on a share depends only on its risk β relative to the market portfolio. CAPM is based on strict assumptions (simultaneity of information, risk- free borrowing at a single rate, liquidity, etc. ), and in practice, they are often not implemented [2]. Moreover, empirical studies have revealed a number of anomalies that cannot be explained by CAPM. Thus, Sanjay Basu (1977) showed that stocks with high return/price (low P/E ratio) yield much more profit than CAPM predicted. Rolf W. Banz (1981) discovered the «size effect» - low-capitalized companies demonstrate higher returns [3]. Later, Peter Chung, Herb Johnson and Michael Schill on Fama and French’s 1995 CAPM findings formulated a three-factor model, adding to the market factor the factors of «cost» («price/balance sheet» or «income/price» ratio) and «size» of the company. These factors significantly improve the explanation of stock yield differences by identifying behavioural components: for example, when comparing stocks with high and low P/E, it often turns out that highly valued «growth stocks» are overvalued while «value stocks» are undervalued [4]. Thus, financial 131 SCIENCE SHINE INTERNATIONAL SCIENTIFIC JOURNAL Issue 11(46), Volume 1 | ISSN 3030-377X | 25.05.2025 ratios and psychological effects (excessive optimism during bullish periods and excessive pessimism during crises) lead to price distortions that do not account for the classical CAPM. An alternative to C