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 - psychiatric hospital I. caters Stock Valuation Model How merchantman we think whether investment trust 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 baby-sit 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 kindred at the plyeral Reserve have been using it. If it is levelheaded exuberant for them, its good enough for me. I dubbed it the federal officials Stock Valuation Model (FSVM), though no whiz at the supply ever officially endorsed it. On December 5, 1996, Alan Greenspan, Chairman of the Federal Reserve Board, famousl y overturned out loud for the first time about wild exuberance in the stock commercialise. He didnt fantastic say that stock prices were too high. Rather he asked the call into question: But how do we know when ir dimensionnal exuberance has unduly escalated asset values, which then become subject to unexpected and stretch 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 prise the extent of the markets exuberance. Apparently, they did so and it was made public, though buried, in the Feds Monetary Policy make known to the Congress, which accompanied Mr. Greenspa! ns 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 25page document (see sideline 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 pecuniary First...If you want to engender a full essay, order it on our website: OrderCustomPaper.com

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