Multiples, Forecasting, and Asset Allocation
12 Pages Posted: 16 Apr 2015
Date Written: April 15, 2015
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: 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
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