CAPE as it is currently defined, price divided by the average of ten years of earnings (moving average), adjusted for inflation, can trace its history to a paper written by Shiller and Campbell in July 1997. (Valuation Ratios and the Long-Run Stock Market Outlook, The Journal of Portfolio Finance, Winter 1998). In their 1988 work, (Stock Prices, Earinings and Expected Dividends, Journal of Finance, July 1988) they divided by a lagged thirty-year moving average of real earnings. The concept of dividing price by a long-term average of earnings has been around for some time now. Graham and Dodd suggested it in their textbook Security Analysis in 1934.CAPE was "invented" in 1988, 36 years ago, and even though I don't have a version of 1988 and of 2024 in front of me to compare, and the regression line probably changed a bit due to the additional data, the many independent out of sample global data points since then seem to fit quite neatly into the overall scheme.
Statistics: Posted by IDpilot — Sat Dec 07, 2024 7:35 am — Replies 477 — Views 43413