The Fed Model: A Note
IESE Business School
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.
Number of Pages in PDF File: 11
Keywords: Fed model, stock pricing, p/e ratios
JEL Classification: G11, G12, G15
Date posted: November 10, 2005