The Fed Model: A Note

11 Pages Posted: 10 Nov 2005

Date Written: November 2005


The negative relationship between market P/E ratios and government bond yields seems to have become conventional wisdom among practitioners. Both (limited) empirical evidence and a (misleading) suggestion that the model originated in the Fed are used to support the model's plausibility. The evidence in this note, from 20 international markets, seriously questions the wide acceptance and use of this model.

Keywords: Fed model, stock pricing, p/e ratios

JEL Classification: G11, G12, G15

Suggested Citation

Estrada, Javier, The Fed Model: A Note (November 2005). Available at SSRN: or

Javier Estrada (Contact Author)

IESE Business School ( email )

IESE Business School
Av. Pearson 21
Barcelona, 08034
+34 93 253 4200 (Phone)
+34 93 253 4343 (Fax)

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