What is Hidden in the Fed's Model? The Second Approximation

11 Pages Posted: 3 Oct 2003

Date Written: August 21, 2003

Abstract

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

Baryshevsky, Dmitry V., What is Hidden in the Fed's Model? The Second Approximation (August 21, 2003). Available at SSRN: https://ssrn.com/abstract=439700 or http://dx.doi.org/10.2139/ssrn.439700

Dmitry V. Baryshevsky (Contact Author)

Financial Analysis Group ( email )

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