Fight the Fed Model

@inproceedings{Asness2003FightTF,
  title={Fight the Fed Model},
  author={Clifford S. Asness},
  year={2003}
}
The “Fed model” is a popular yardstick for judging whether the stock market is fairly valued. It compares the stock market's earnings yield to the long-term government bond yield, while more traditional methods evaluate stock market valuation without regard to the level of interest rates. The Fed model is theoretically flawed, as it compares a real number to a nominal number, ignoring the fact that over the long term nominal earnings generally move in tandem with inflation. The crucible for… 

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