What is Hidden in the Fed's Model? The Second Approximation
11 Pages Posted: 3 Oct 2003
Date Written: August 21, 2003
There are a lot of approaches for estimation of the equity market attractiveness. Fed's model has received a wide prevalence. However this model has a number of essential restrictions. In particular the Fed's model uses current earnings yield, which is based on analysts' estimates of earnings over the coming twelve months. However as it is shown in the article these estimations can play certain role only in the short-term prospect. In the long-term prospect they will reflect real changes in economy that makes their use as parameters for the long-term estimation doubtful enough. In the article the model of alternative investments is offered as one of the ways to evaluate the equity market.
Keywords: Fed model, Treasury bond yield, current earnings yield, equity market attractiveness, equity market valuation model, long-term earnings growth, CRB Spot Index yield
JEL Classification: C00, C12, C13, C22, C50, G00, G12
Suggested Citation: Suggested Citation