Join 924 investors who get actionable, evidenced-based wealth management insights delivered directly to their inbox.
Subscribe

A Closer Look at CAPE Ratio

When estimating returns, we know that current valuations provide valuable information.

The earnings yield derived from the Shiller CAPE 10—the cyclically adjusted price-to-earnings ratio—is considered by many to be at least as good, if not better, than other metrics. It uses smoothed real earnings to eliminate the fluctuations in net income caused by variations in profit margins over a typical business cycle.

The research shows that valuation metrics such as the CAPE 10 explain about 40 percent of real (after inflation) 10-year returns. However, it’s also important to note that the CAPE 10 provides no value forecasting short-term returns. In fact, the correlation with one-year-ahead returns is close to zero.

Read the rest of the article at ETF.com.

 

We want to hear from you!

Montgomery

866.676.2701
info@jt-am.com
200 Commerce Street
Suite 300
Montgomery, AL 36104
Map

Dothan

334.793.7001
info@jt-am.com
304 Jamestown Boulevard
Dothan, AL 36301
Map

Receive Our Newsletter

Close