Is the market over-valued?

9.10.2009
KLCI index 1230.09
Market PE 23.53
EY = 1/PE = 4.25%
Risk free FD interest rate = 2.5%
Equity risk premium = 4.25 - 2.5 = 1.75%


Equity risk premium  = earnings yield (1/market PE) - the risk free rate.

 > 3.5%, market is undervalued
<  0.6%, market is overvalued
0.6% to 3.5%, market is fairly valued.

So, presently, the market is neither undervalued nor overvalued, but trading at fair value.


http://myinvestingnotes.blogspot.com/2009/07/when-is-market-over-valued.html