One such approach compares equity market valuations (namely earnings-price ratios) to the return on fixed-income securities, generally the 10-year US Treasury bond. But many observers have suggested that this measure of the “correct” stock market valuation may no longer be accurate.
Some suggest that the nature of equity markets has changed with the introduction of new instruments that allow for the better management or sharing of risks. Therefore, these observers assert that lower premiums over risk-free returns are appropriate and that old relationships between earnings-price ratios and the return on Treasury instruments no longer hold.