Commodity 'CAPE Ratios'

18 Pages Posted: 22 Sep 2014

Date Written: May 19, 2014

Abstract

Commodity "CAPE ratios" may provide some insight into prospective long-term real commodity price returns, just as equity "CAPE ratios" may provide some insight into prospective long-term real equity returns. A commodity CAPE ratio is simply the inflation-adjusted price, the real price, of a commodity. Above average commodity real prices may suggest below average future real commodity price returns and below average commodity real prices may suggest above average future real commodity price returns. A view, a belief, that a commodity’s real price may be more volatile than its "fundamental value" suggests, but does not prove, that value-oriented commodity strategies may be attractive.

Keywords: Commodities, real price, CAPE ratio, mean reversion, subjective belief

JEL Classification: G10, G11, G12, G15, G28, E58, N20, G13, E44, Q11, Q41, Q14

Suggested Citation

Erb, Claude B., Commodity 'CAPE Ratios' (May 19, 2014). Available at SSRN: https://ssrn.com/abstract=2499076 or http://dx.doi.org/10.2139/ssrn.2499076

Claude B. Erb (Contact Author)

TR ( email )

CA 90272
United States

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