Shiller's CAPE: Market Efficiency and Risk

Dimitrov, Valentin; Jain, Prem C.

doi:10.1111/fire.12167

Cited by 4 publications

(4 citation statements)

References 41 publications

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“…Our findings are in line with Lleo & Ziemba ( 2019 ) and Angelini et al, ( 2012 ). In addition, our empirical findings are compatible with the findings of Dimitrov & Jain ( 2018 ) and Rangvid ( 2017 ).…”

Section: Discussionsupporting

confidence: 92%

“…He came to the conclusion that by using the combination of 1/CAPE and the total sum of future returns, the returns of the S&P 500 for the next decade could be very well predicted. Dimitrov and Jain ( 2018 ) tested market efficiency using the CAPE index. They stated that stock returns are higher than US 10-year bond yields, so even at very high CAPE prices, the buy and hold strategy can work.…”

Section: Literature Reviewmentioning

confidence: 99%

“…For many decades, the CAPE ratio (Cyclically Adjusted Price to Earnings ratio) or Shiller’s P/E ratio has been used by academics, researchers, investing firms and others in an attempt to evaluate the US Stock Market, especially the S&P Index and many other stock markets globally. The supporters of the ratio believe that it can predict future returns (Angelini et al 2012 ; Lleo and Ziemba 2019 ; Dimitrov and Jain 2018 ; Rangvid 2017 ).…”

Section: Introductionmentioning

confidence: 99%

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On the predictive power of CAPE or Shiller’s PE ratio: the case of the Greek stock market

2021

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This paper examines the capability of the Cyclically Adjusted Price to Earnings (CAPE) or Shiller's P/E ratio, along with other relative valuation ratios such as the P/E and the P/BV, to predict future returns of the FTSE/ASE Large Cap Index, starting from the development of the index (1997) to December 2018. We have herein used several regression models in order to examine the relationship between the above ratios and the future returns of 1, 3, 5 and 10 years. We show that, while P/E and P/BV ratios are not correlated to future returns, the CAPE ratio and its variation CAPE 5, which uses real 5 year earnings, are efficient estimators of future returns. Our results imply the informational inefficiency of the Greek Stock Market.

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Section: Discussionsupporting

confidence: 92%

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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On the predictive power of CAPE or Shiller’s PE ratio: the case of the Greek stock market

2021

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“…Over the last three decades, the subject has become the center of finance research, attracted many researchers' attention, and contributed to the development of corporate finance theory. Despite critics and anomalies raised by several researchers (e.g., Massey & Thaler, 2013;Malkiel, 2003), many researchers believed that the prices incorporate in the stock market reflect information available in the market (Chordia & Miao, 2020;Dimitrov & Jain, 2018;Fama, 1998).…”

Section: Introductionmentioning

confidence: 99%

Earnings Announcement, Abnormal Returns, and Market Efficiency in Indonesia Equity Market: An Analysis From Industrial Factor Perspective

Rexon

Chu

2020

IJIM

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The paper examines the market efficiency of nine industry sectors of the IDX market. Using an event window of 30 days post-earnings announcement stock returns after the public announcement of the financial statements as of 31 December 2018, the study tests the significance of cumulative average abnormal returns surrounding the earnings announcement. The study concludes that there are significant variances in the market efficiency towards earnings announcement across nine industry sectors in IDX. The finding indicates that the industry-specific factors influence the level of abnormal returns surrounding the earnings announcement. However, the findings reject the market efficiency in agriculture (AGRI) and property, real estate, and building (PROP) industries. The results illustrate that the miscellaneous industry (MISC) reacts immediately to the earnings announcement, but its significance is only for a short period. The infrastructure, utilities, and transportation (INFRA) industry show delays in its response to the announcement but continuously significant for a relatively long period. Other industries of mining (MINING), basic industry and chemicals (BASIC), construction, real estate, and building (CONS), financial (FIN), as well as trading, services, and investments (TSI), report significant negative CAARs in all investigated windows. The One Way ANOVA testing concludes that the nine industries' cumulative average abnormal returns on IDX are significantly different from each other sectors.

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A modified Shiller's cyclically adjusted price-to-earnings (CAPE) ratio for stock market index valuation in a zero-interest rate environment

Catanho

Saville

2022

Investment Analysts Journal

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The cyclically adjusted price-earnings ratio (CAPE) is a tool that has become widely used to predict market returns. However, recently, deterioration in its forecast strength has surfaced. At the same time, global long-term interest rates have declined and are expected to remain at record lows, which the CAPE fails to consider, and which represents a gap in knowledge. This study uses a modified CAPE to account for interest rates, known as the excess CAPE yield (ECY), to offer an alternative -and potentially improved -model for predicting global stock market returns. We find that CAPEs peak when real interest rates are between 3% and 5%, while the ECY fails to improve on the predictive abilities of the CAPE.

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Shiller's CAPE: Market Efficiency and Risk

Cited by 4 publications

References 41 publications

On the predictive power of CAPE or Shiller’s PE ratio: the case of the Greek stock market

On the predictive power of CAPE or Shiller’s PE ratio: the case of the Greek stock market

Earnings Announcement, Abnormal Returns, and Market Efficiency in Indonesia Equity Market: An Analysis From Industrial Factor Perspective

A modified Shiller's cyclically adjusted price-to-earnings (CAPE) ratio for stock market index valuation in a zero-interest rate environment

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