Fed Model


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Fed Model

A theory used by some analysts to determine whether to buy stocks or bonds. The theory postulates that there ought to be relative equality between the yield on the S&P 500 and that of 10-year Treasury notes. If the S&P 500 yield is higher, this indicates that the S&P 500 (and by extension stocks in general) are undervalued; it is seen as a buy signal for stocks. If 10-year note returns are higher, this is seen as a buy signal for bonds. Contrary to the name, the Federal Reserve does not endorse the model.
References in periodicals archive ?
Finally, to promote a healthy microbiota, identified breast-milk metabolites will be used to supplement the formula fed model.
Ricardo Lagos, New York University and NBER, and Shengxing Zhang, London School of Economics, "Monetary Exchange in Over-the-Counter Markets: A Theory of Speculative Bubbles, the Fed Model, and Self-Fulfilling Liquidity Crises"
For example, Chapter 2 discusses uses of the FED model and charges of its lack of evidence without directly defining it.
The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the inflation risk premium.
The so-called Fed model can be used to estimate the risk premium, i.
Indeed, the Fed model, the source of Alan Greenspan's infamous "irrational exuberance" comments, now shows US stocks on consensus estimates at some 33 percent undervalued relative to bonds.
The Fed Model (which compares interest rates to estimated earnings) suggests the stock market is undervalued, and so does Alcosta's own portfolio, which has a median PEG (PE/Growth) ratio of less than 1," Ormsby said.
The Cleveland Fed model of inflation expectations provides a simple measure of expected inflation that has two advantages over the break-even rate derived from TIPS.
For the Swedish OMX index, the Fed model indicates that the additional return on equities is relatively high by historical standards (see Diagram 37).
The Fed Model developed by the Dent organization continues to indicate that the equity markets are significantly undervalued.
The differential between the inverted P/E ratio and the real rate of interest on bonds is a measure of the additional return on higher-risk equity investments, according to the so-called Fed model (see Diagram 37).
The so-called Fed model relates the return on shares to the return on long-term government bonds.