Multiples, Forecasting, and Asset Allocation

12 Pages Posted: 16 Apr 2015  

Javier Estrada

IESE Business School

Date Written: April 15, 2015

Abstract

Multiples such as D/P, P/E, and CAPE are useful when forecasting long-term returns, and largely useless when forecasting short-term returns. Given this mixed forecasting ability, the issue addressed in this article is whether these multiples can be used to devise successful asset allocation strategies in the sense of outperforming a simple static portfolio. The bulk of the evidence discussed here suggests that investors would be better off sticking with a simple 60-40 stock-bond portfolio.

Keywords: Multiples; forecasting; asset allocation; CAPE; value investing

JEL Classification: G11

Suggested Citation

Estrada, Javier, Multiples, Forecasting, and Asset Allocation (April 15, 2015). Available at SSRN: https://ssrn.com/abstract=2594612 or http://dx.doi.org/10.2139/ssrn.2594612

Javier Estrada (Contact Author)

IESE Business School ( email )

IESE Business School
Av. Pearson 21
Barcelona, 08034
Spain
+34 93 253 4200 (Phone)
+34 93 253 4343 (Fax)

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