Yield Gap

Yield Gap or Yield Ratio is the ratio of the dividend yield of an equity and the yield of a long-term government bond. Typically equities have a higher yield (as a percentage of the market price of the equity thus reflecting the higher risk of holding an equity. [ [http://glossary.reuters.com/index.php/Yield_Gap Yield Gap] ; Reuter's Financial Glossary] [ [http://moneyterms.co.uk/yield-gap/ Yield Gap] ; Moneyterms]

mbox{Yield Gap} = frac {mbox{Yield Ratio of Equity {mbox{Yield Ratio of Bond

The purpose of calculating the yield gap is to assess whether the equity is over or under priced as compared to bonds. For a given equity, the following cases may be considered:
* If the yield gap is numerically small, then equity yield is lower than bond yield implying that the equity is overpriced.
* If the yield gap is numerically large, then equity yield is higher than bond yield implying that the equity is cheap.

See also

Yield (finance)


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Look at other dictionaries:

  • yield gap — ˈyield gap noun [countable] FINANCE the difference between the amounts of interest on two types of bonds: • The yield gap between the three month bill and the 30 year bond widened to 213 basis points from 212. * * *    Also known as yield ratio.… …   Financial and business terms

  • yield gap — The difference between the average annual dividend yield on equity and the average annual yield on long dated gilt edged security Before the 1960s yields obtained from UK equities usually exceeded the yields provided by long dated UK gilts,… …   Big dictionary of business and management

  • yield gap — Fin an amount representing the difference between the yield on a very safe investment and the yield on a riskier one …   The ultimate business dictionary

  • yield gap — n. Finance the difference between the return on government issued securities and that on common stock …   Useful english dictionary

  • reverse yield gap — noun (commerce) The amount by which the average yield on the shares making up the Financial Times ordinary index, or the return on any particular stocks, falls short of the return on 21/2% consolidated annuities • • • Main Entry: ↑reverse …   Useful english dictionary

  • reverse yield gap — See yield gap …   Big dictionary of business and management

  • yield spread — The difference in yield between different security issues usually securities of different credit quality. Bloomberg Financial Dictionary * * * yield spread yield spread ➔ spread2 * * * yield spread UK US noun [C] ► ( …   Financial and business terms

  • Yield curve — This article is about yield curves as used in finance. For the term s use in physics, see Yield curve (physics). Not to be confused with Yield curve spread – see Z spread. The US dollar yield curve as of February 9, 2005. The curve has a typical… …   Wikipedia

  • Yield Curve — A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three month, two year, five year and 30 year U.S. Treasury… …   Investment dictionary

  • beta-adjusted gap — Gap reports modified to mollify the errors caused by basis risk. The essential concept of beta adjusted gap is that all interest rates do not change by the same amounts, but that there is an identifiable relationship, a correlation, between… …   Financial and business terms

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