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Assessing the risks of asset overvaluation: models and challenges

Sara Cecchetti () and Marco Taboga ()
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Sara Cecchetti: Bank of Italy

No 1114, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We propose methods to compute confidence bands for the fundamental values of stocks and corporate bonds. These methods take into account uncertainty about future cash flows and about the discount factors used to discount the cash flows. We use them to assess the current degree of under-/over-valuation of asset prices. We find no evidence of over-valuation of the stocks and corporate bonds of the major economies.

Keywords: stock risk premium; bond risk premium; fundamental value; under-/over-valuation (search for similar items in EconPapers)
JEL-codes: B26 C02 (search for similar items in EconPapers)
Date: 2017-04
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