Yardeni model

FrankCFA

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Understand Yardeni model, E1/P0= Bond yield (A rated)−d×LTEG
Based on historical data, d is around 0.1

Q: Is d just a passive paramater or any leading indicator will influence this number(d)?
 
More like it is a passive paramater, derived from some regression historical model.
 
In the Yardeni model, I think of the coefficient d as a weighting factor for long term earnings growth (LTEG). The market assigns a weighting factor to earnings projections based on the likelihood that the earnings growth is to occur. The CFAI text in Reading 17 Equity Market Valuation (pages 148-149) states that d can be solved for in the Yardeni model using historical values. Historical averages assign a value of approximately 0.10 to d. For the exam, I imagine we’ll be provided with a value for d or, if we’re not provided with a value, we’ll use the historical average of 0.10.
Hope this helps!
OMGMileyCyrus
 
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