The Test Bench › gate

Does Equity Risk Premium / Fed model (as a timing signal) actually work?

DEAD

No edge left once tested on a fair footing.

The claim

Equity Risk Premium / Fed model tells you when to be in or out of the market — The 'Fed model' crowd

What we did

Tested against Buy & hold the S&P, modern 1997-2026 daily + Shiller 1920-2023 monthly, OOS, null-floor controlled.

The result

Result: +0.00 in/out edge; noise

+0.00 in/out edge; noise

Verdict

Earnings yield minus the bond yield is a fine long-horizon gauge of whether stocks are cheap vs bonds. As a market-timing trigger it's worthless -- it flickers for years before anything happens. Forecast, not a timer.

What the test did and did not do

survivorship-free universe
net of real costs
tested out of sample
point-in-time data
checked for look-ahead

Almost nobody publishing a backtest says which of these they did. We list the ones we failed as well as the ones we passed.

Tested 2026-06-23. The same treatment, applied to every other system, is on the test bench.

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Written with AI assistance from our own test database. The numbers are computed, not composed.
General market commentary for education, not personalised investment advice. Backtested results are hypothetical. Trading carries a real risk of loss.