@article {Durham80, author = {J. Benson Durham}, title = {Which Component of Treasury Yields Belongs in Equity Valuation Models? An Application to the S\&P 500 }, volume = {39}, number = {4}, pages = {80--90}, year = {2013}, doi = {10.3905/jpm.2013.39.4.080}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Given a relaxation of the expectations hypothesis of interest rates and an estimate of the term premium, the remaining assumption that anticipated distant-horizon nominal expected short rates and projected earnings growth are equivalent implies novel cash-flow-based valuation models for shares. For example, an application of a simple dividend-discount framework to the S\&P 500, under 600 alternative specifications (to avoid data mining), using a sample from January 1987 through January 2012, fits the data well. It suggests that the model errors correct; it also suggests the argument that estimated forward Treasury term premiums, not yields, belong in the discount factor.TOPICS: Factor-based models, statistical methods, fundamental equity analysis}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/39/4/80}, eprint = {https://jpm.pm-research.com/content/39/4/80.full.pdf}, journal = {The Journal of Portfolio Management} }