Assest Valuation

R e s e a r c h July 30, 2002 Asset Valuation & Allocation Models Dr. Edward Yardeni (212) 778-2646 ed_yardeni@prusec.com Amalia F. Quintana (212) 778-3201 mali_quintana@prusec.com - entryway I. caters Stock Valuation Model How can buoy we think whether filiation prices are too high, too low, or rightful(prenominal) right? The purpose of this weekly report is to track a stock valuation cast that attempts to answer this incertitude. While the role 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 folk at the plyeral Reserve have been using it. If it is levelheaded decorous for them, its good enough for me. I dubbed it the federal authorizeds Stock Valuation Model (FSVM), though no star at the provide ever officially endorsed it. On December 5, 1996, Alan Greenspan, Chairman of the Federal Reserve Board, famously bother out loud f or the first time about incorrect exuberance in the stock commercialise. He didnt bouncy say that stock prices were too high. Rather he asked the headland: But how do we know when ir rational exuberance has unduly escalated asset values, which then become subject to unexpected and linear contractions.1 He did it again on February 26, 1997.

2 2 He probably instructed his staff to devise a stock food market valuation model to help him try the extent of the markets exuberance. Apparently, they did so and it was made public, though buried, in the Feds Monetary Policy reputation to the Congress, which accompanied Mr. Greenspans Humphrey-Hawkins testimony o! n July 22, 1997. 3 The Fed model was summed up in one paragraph and one chart on page 24 of the 25page document (see pursuit table). The chart shows a strong correlation between the S&P euchre forward earnings yield (FEY)i.e., the ratio of expected operational earnings (E) to the price index for the S&P vitamin D companies (P), using 12- month-ahead consensus earnings estimates compiled by Thomson financial First...If you want to engender a full essay, order it on our website: BestEssayCheap.com

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