Bond Equity Earnings Yield Ratio - BEER

Filed Under » , ,
Dictionary Says

Definition of 'Bond Equity Earnings Yield Ratio - BEER'

A metric used to evaluate the relationship between bond yields and earnings yields in the stock market. The Bond Equity Earnings Yield Ratio (BEER) has two parts – the top is represented by a benchmark bond yield (such as five- or 10-year Treasuries) while the bottom is the current earnings yield of a stock benchmark (such as the S&P 500). 

Also known as the BEYR or the Gilt-Equity Yield Ratio (GEYR).
Investopedia Says

Investopedia explains 'Bond Equity Earnings Yield Ratio - BEER'

A BEER of 1 would indicate equal levels of perceived risk in the bond market and the stock market. Analysts often feel that BEER ratios greater than 1 imply that equity markets are overvalued, while numbers less than 1 mean they are undervalued, or that prevailing bond yields are not adequately pricing risk.

Consider the example of a BEER made up of a 10-year Treasury with a current yield of 4.5% and an S&P 500 earnings yield of 5% (P/E of 20). The ratio created would resemble the following:

Bond Yield (4.5) / Earnings Yield (5) = 0.9

The earnings yield of the stock market (or simply an individual stock) is just the inverse of the P/E ratio. If the BEER is above normal levels the assumption is that the price of stocks will decrease thus lowering the BEER.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Earnings Yield

    The earnings per ...

  2. Benchmark Bond

    A bond that ...

  3. 10-Year Treasury Note

    A debt ...

  4. S&P Core Earnings

    The Standard and ...

  5. Stock Market Capitalization To GDP Ratio

    A ratio used to ...

  6. Dividend Yield

    A financial ...

  7. Agency Bond

    A bond issued by ...

  8. Convertible Arbitrage

    An investing ...

  9. Liquidation

    1. When a ...

  10. Canada Savings Bond - CSB

    A financial ...

Articles Of Interest

  1. Bond Yield Curve Holds Predictive Powers

    This measure can shed light on future economic activity, inflation levels and interest rates.

  2. Can a bond have a negative yield?

  3. DCF Valuation: The Stock Market Sanity Check

    Calculate whether the market is paying too much for a particular stock.

  4. Why do low interest rates cause investors to shy away from the bond market?

  5. The Fed Model And Stock Valuation: What It Does And Does Not Tell Us

    Learn about this popular stock market valuation model and how accurate it has been over the years.

  6. Determining Market Direction With VIX

    The CBOE's volatility index is a helpful market indicator. Learn how it can gauge the mood of the stock market.

  7. Company Clone Cost Reveals True Value

    Find out how calculating a reproduction cost for a company can beat out the dividend discount model.

  8. This Is Your Brain On Stocks

    Find out how the human mind can hurt investors' portfolios.

  9. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.

  10. 5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
Sponsored links

comments powered by Disqus
Hot Definitions

  1. Love Money

  2. Shark Watcher

  3. Judo Business Strategy

  4. Dogs Of The Dow

  5. Chinese Hedge

  6. X-Mark Signature

Recommended
Loading, please wait...
See More »
Trading Center