RT Journal Article SR Electronic T1 The Equity Premium Puzzle and the Federal Reserve’s Stock Valuation Model JF The Journal of Investing FD Institutional Investor Journals SP 24 OP 33 DO 10.3905/joi.2011.20.2.024 VO 20 IS 2 A1 Stephanie Yates Rauterkus A1 Andreas Rauterkus A1 Theodore Bos YR 2011 UL https://pm-research.com/content/20/2/24.abstract AB We test a model to estimate the equity risk premium based on a stock valuation model suggested by former Federal Reserve Chairman, Alan Greenspan. The model suggests that the stock market is fairly priced when the price of the market portfolio is equal to the ratio between market earnings and the yield on the 10-year Treasury bond. From this stock valuation model and extensions to it, we derive an equation for the expected market risk premium. Ex post we find that a model which accounts for corporate bond yields and the inherent differences between common stocks and Treasury bonds (most notably risk) provides a good estimate of the equity risk premium.TOPICS: Analysis of individual factors/risk premia, factor-based models, statistical methods