Český finanční a účetní časopis 2011(1):68-80 | DOI: 10.18267/j.cfuc.98

Valuation of equity capital markets using FED model

Jiří Korbel1, Petr Blaheta2
1 Ing. Jiří Korbel - doktorand; Katedra měnové teorie a politiky, Fakulta financí a účetnictví, Vysoká škola ekonomická v Praze, nám. W. Churchilla 4, 130 67 Praha 3, Česká republika; <jiri.korbel@gmail.com>.
2 Ing. Petr Blaheta - doktorand; Katedra měnové teorie a politiky, Fakulta financí a účetnictví, Vysoká škola ekonomická v Praze, nám. W. Churchilla 4, 130 67 Praha 3, Česká republika; <petr.blaheta@gmail.com>.

The paper deals with problems related to valuation of equity capital markets using a well known FED model. Although the model has a relatively good explanatory power on historical data starting from 1979 to 2002, the recent development during the last financial crisis which started in 2007 and finished in 2009 resulted in significant deterioration of the models' usefulness for forecasting. We also outline selected specifications of the FED model and analyze its behavior during the financial crisis. We conclude that the reason for decrease in explanatory power stems from the change in economic fundamentals. The paper also explores theoretical drawbacks of the FED model.

Keywords: FED model; Financial crisis; Valuation.
JEL classification: G11

Published: March 1, 2011  Show citation

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Korbel, J., & Blaheta, P. (2011). Valuation of equity capital markets using FED model. Czech Financial and Accounting Journal, 2011(1), 68-80. doi: 10.18267/j.cfuc.98
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