An international test of the Fed model

Samuel Aubert and Pierre Giot ()
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Pierre Giot: University of Namur

Journal of Asset Management, 2007, vol. 8, issue 2, No 3, 86-100

Abstract: Abstract In a way similar to Asness, this paper examines the effectiveness of earnings yields, as well as of their difference with long-term government bond yields (the so-called Fed model), to forecast real stock returns of various horizons in nine countries. Moreover, the same tests are repeated with dividend yields in place of earnings yields. Forecasting power is measured by using regression analysis. The results show that the traditional model is somewhat successful at forecasting long-term stock returns, whereas the Fed model is a failure.

Keywords: stock prices; earnings; long-run stock market valuation; interest rates; inflation (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1057/palgrave.jam.2250063

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