Making Sense of Asset Prices: A Guide to Required Yield Theory - Part I: Valuing the Stock Market
48 Pages Posted: 15 Jun 2011 Last revised: 24 Jun 2011
Date Written: June 13, 2011
The bad news is: there is widespread confusion about how asset prices are determined. The good news is: this series of short essays about Required Yield Theory aims at establishing a clear understanding of the underlying mechanisms behind asset prices. Installment # 1 covers the stock market. I survey the current state of knowledge regarding stock valuation and showcase the logical and empirical effectiveness of Required Yield Theory as it explains how the S&P 500 is valued. Based on the tenets and results of this new theory, I derive a list of key insights for investing in the S&P 500.
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