What the Shiller PE Says About Global Equity Markets: Update 2013

Abstract

We update our analysis of expected returns for equity markets around the world. Based on the current Shiller-PE ratios of 38 developed and emerging equity markets around the world, our findings indicate that expected real returns are still positive for the coming five to ten years. European stock markets remain the most attractively valued, while the US stock market is among the most overvalued. We anticipate that expected real returns for US stocks over the coming five to ten years should be in the order of 2% to 2.5% per annum, while European equity markets may see real returns in the high single digits. At the same time, we note that rising interest rates could undercut expected returns.

Keywords: Shiller PE, cyclically adjusted PE, equity market returns

JEL Classification: G12