Are Stocks Overvalued? A Survey Of Equity Valuation Models

July 28, 2015


  1. In a box plot, the box represents the range of the middle quartiles (25th to 75th percentile) of returns. The whiskers extending from the top and bottom of each box show the maximum and minimum returns, respectively.
  2. The Gordon growth model is represented as r = D/P + g, where D/P is dividend yield and g is capital gain (i.e., appreciation yield).
  3. For readers interested in more details, our equity methodology document is available in the Asset Allocation section of our website.
  4. A better estimate of earnings yield would incorporate average earnings over time, as does the CAPE (Shiller P/E) ratio; a discussion of CAPE appears later in this article.
  5. Relative metrics are anchored to their long-term historical levels and assume a 50% return to those levels over the next 10 years via a change in price only.
  6. The character Nunez appears in H.G. Wells' The Country of the Blind, and Other Stories. Nunez was an explorer who discovered a village where everyone was blind, but over the generations had been able to hone their other senses. In addition, they developed stories about how the world "looks." When Nunez arrived and described the world as he—a man with vision—saw it, the villagers scorned him as a liar.


Arnott, Rob. 2011. "King of the Mountain." Fundamentals, Research Affiliates (September).

Greenspan, Alan. 2008. The Age of Turbulence: Adventures in a New World. New York: Penguin Press (p. 177).

Pleven, Liam. 2015. "Stock Prices: Is 'Quite High' Too High?" Wall Street Journal (May 15).

The Fed. 2015. "Yellen Says Stock Valuations Are 'Quite High,'" MarketWatch (May 6)

Tobin, James. 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit, and Banking, vol. 1, no. 1 (February):15−29.


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Chris Brightman, CFA, Chief Investment Officer, Research Affiliates, LLC

Jim Masturzo, CFA, Vice President, Asset Allocation, Research Affiliates, LLC

Noah Beck, Senior Researcher, Research Affiliates, LLC

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