Overhauling the Science of Valuations

Oliver Wyman Forum

Jacques Cesar

Research

133 Pages

Oliver Wyman rethinks how equity markets should be valued by modernizing traditional frameworks like CAPM and introducing a new, more responsive valuation metric. It challenges widely held beliefs, arguing markets may be more efficient than assumed and that breakeven inflation reflects risk, not expectations.

Key Takeaways

New Valuation Metric: A redesigned model outperforms both P/E and CAPE, which relies on 10-year average earnings, by being more timely and less volatile in real-time pricing signals.
CAPM Reengineered: Fixing execution flaws allows CAPM to explain equity prices across roughly 150 years of data, rather than failing outright as many assume.
Hidden Treasury Risks: Identifies 10 overlooked risks in Treasuries that distort the true risk-free rate, impacting equity valuation frameworks and investor assumptions.
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