文档介绍：Research Asset Valuation & Allocation
July 30, 2002 Models
Dr. Edward Yardeni
(212) 778-2646
ed_yardeni@
Amalia F. Quintana
(212) 778-3201
mali_quintana@
- Introduction -
I. Fed’s Stock Valuation Model
How can we judge whether stock prices are too high, too low, or just right? The purpose
of this weekly report is to track a stock valuation model that attempts to answer this
question. While the model is very simple, it has been quite accurate and can also be used
as a stocks-versus-bonds asset allocation tool. I started to study the model in 1997, after
reading that the folks at the Federal Reserve have been using it. If it is good enough for
them, it’s good enough for me. I dubbed it the Fed’s Stock Valuation Model (FSVM),
though no one at the Fed ever officially endorsed it.
On December 5, 1996, Alan Greenspan, Chairman of the Federal Reserve Board,
famously worried out loud for the first time about “irrational exuberance” in the stock
market. He didn’t actually say that stock prices were too high. Rather he asked the
question: “But how do we know when irrational exuberance has unduly escalated asset
values, which then e subject to unexpected and prolonged contractions….”1 He did
2
it again on February 26, 1997. 2 He probably instructed his staff to devise a stock market
valuation model to help him evaluate the extent of the market’s exuberance. Apparently,
they did so and it was made public, though buried, in the Fed’s ary Policy Report
to the Congress, which panied Mr. Greenspan’s Humphrey-Hawkins testimony on
July 22, 1997. 3
The Fed model was summed up in one paragraph and one chart on page 24 of the 25-
page document (see following table). The chart shows a strong correlation between the
S&P 500 forward earnings yield (FEY)—., the ratio of expected operating earnings (E)
to the price index for the S&P panies (P), using 12- month-ahea