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: Suggested Citation