Cape Around the World: Update 2014 – The Relationship between Risk and Return
13 Pages Posted: 24 Jul 2014
Date Written: July 24, 2014
We update our annual analysis of expected returns for 38 equity markets around the world. Based on current CAPE valuations, we expect mid to high single-digit yearly returns in most developed equity markets. However, risks are elevated for some markets. We specifically investigate drawdown risk and find that given its current valuation levels, the US market in particular exhibits a high risk of significant future drawdowns.
Keywords: Shiller PE, cyclically adjusted PE, equity market returns, drawdown risk
JEL Classification: G12
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