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Home » Macro Analysis » New global research on Graham / Shiller Cyclically Adjusted Price Earnings (CAPE) ratio

New global research on Graham / Shiller Cyclically Adjusted Price Earnings (CAPE) ratio

Thanks to Greenbackd.com I came across two highly interesting studies:
Conclusions:
1…the Cyclically Adjusted Price Earnings Ratio is a powerful predictor of future long run performances of the market not only for the U.S. but also for countries such us Belgium, France, Germany, Japan, the Netherlands, Norway, Sweden and Switzerland.
2….CAPE is a reliable long-term valuation indicator for developed and emerging markets.
The last paper has some interesting findings on individual countries…e.g. Greece 95% expected cumulative real return in the next 5 yrs; USA merely 24%
Enjoy!

Greenbackd

There are two great new papers on the global “predictiveness” of the Graham / Shiller Cyclically Adjusted Price Earnings (CAPE) ratio. The first, Value Matters: Predictability of Stock Index Returns, by Natascia Angelini, Giacomo Bormetti, Stefano Marmi, and Franco Nardini examines the ability of the CAPE to predict long-run stock market performance over several different periods in developed markets like the U.S., Belgium, France, Germany, Japan, the Netherlands, Norway, Sweden and Switzerland. From the abstract:

The aim of this paper is twofold: to provide a theoretical framework and to give further empirical support to Shiller’s test of the appropriateness of prices in the stock market based on the Cyclically Adjusted Price Earnings (CAPE) ratio. We devote the first part of the paper to the empirical analysis and we show that the CAPE is a powerful predictor of future long run performances of the market not only for the U.S. but also for countries such…

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