18 Pages Posted: 24 Sep 2013 Last revised: 22 Oct 2013
Date Written: October 21, 2013
We confirm the effectiveness of using cyclically-adjusted valuation metrics to identify high performing stocks. The Shiller P/E, or cyclically-adjusted price-to-earnings (CAPE) ratio, is not the optimal way to implement a cyclically-adjusted value measure. At the margin, the cyclically-adjusted book-to-market (CA-BM) is a better measure to predict returns. We find that more frequent rebalancing and momentum can enhance strategies based on cyclically-adjusted valuation metrics.
Keywords: CAPE, Shiller P/E, long-term valuation metrics, value investing, market efficiency, abnormal returns
JEL Classification: G10, G12, G14
Suggested Citation: Suggested Citation
Gray, Wesley R. and Vogel, Jack, On the Performance of Cyclically Adjusted Valuation Measures (October 21, 2013). Available at SSRN: https://ssrn.com/abstract=2329948 or http://dx.doi.org/10.2139/ssrn.2329948