Research Affiliates examines whether U.S. equities are overvalued by comparing popular absolute and relative valuation models. The paper argues that nearly every framework points to lower long run returns from current price levels, while suggesting non U.S. markets offer meaningfully stronger expected return profiles.
Are Stocks Overvalued? A Survey of Equity Valuation Models
Research Affiliates
Chris Brightman, James Masturzo
Research
9 Pages
Key Takeaways
Valuation Signals Align: Six valuation models broadly reach the same conclusion, with Research Affiliates forecasting just 0.8% annualized real returns for core U.S. equities over the next decade.
Long Horizon Matters: Model 1 explains only 3% of one year return variation, but its explanatory power rises to 31% over a 10 year horizon.
Emerging Markets Advantage: Expected real returns for emerging market equities reach 5.9% annually, compared with 0.8% for core U.S. equities using the authors’ framework.
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