Fed Model proponents argue that there is an equilibrium relationship between the earnings yield of a stock index and the 10-year government bond yield. When the earnings yield is below (above) the 10-year government bond yield, the stock market is overvalued (undervalued). In their August 2005 working paper entitled “An International Analysis of Earnings, Stock Prices and Bond Yields”, Alain Durré and Pierre Giot assess the relationships among stock index prices, earnings and long-term government bond yields for 13 countries (Australia, Austria, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Switzerland, The Netherlands, United Kingdom and the United States) over a 30 year period. Using current earnings for total market indexes over the period 1973-2003, they conclude that: Keep Reading