PT - JOURNAL ARTICLE AU - J. Benson Durham TI - Which Component of Treasury Yields Belongs in Equity Valuation Models? <em>An Application to the S&amp;P 500</em> AID - 10.3905/jpm.2013.39.4.080 DP - 2013 Jul 31 TA - The Journal of Portfolio Management PG - 80--90 VI - 39 IP - 4 4099 - https://pm-research.com/content/39/4/80.short 4100 - https://pm-research.com/content/39/4/80.full AB - 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&amp;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