CAPE: Using Its Variants to Predict the Returns from Investing in the S&P 500 Index

14 Pages Posted: 8 Dec 2017

See all articles by Edward Tower

Edward Tower

Duke University - Department of Economics; Chulalongkorn University-Economics Department

Date Written: September 10, 2013

Abstract

Is the US stock market overvalued? I use Shiller’s CAPE to predict the return of investing in the S&P500 index. Siegel argues that the recent fall in the share of earnings that are paid out as dividends has biased downwards predictions from the CAPE. I offer a solution to the problem of reduced dividends in the form of some alternative versions of CAPE, experiment with different time periods in calculating CAPE, and explore the role of previous peak earnings. While this study refers to the US stock market the issues are also important for valuing other markets.

Suggested Citation

Tower, Edward, CAPE: Using Its Variants to Predict the Returns from Investing in the S&P 500 Index (September 10, 2013). Economic Research Initiatives at Duke (ERID) Working Paper No. 262. Available at SSRN: https://ssrn.com/abstract=3084327 or http://dx.doi.org/10.2139/ssrn.3084327

Edward Tower (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1818 (Phone)
919-684-8974 (Fax)

Chulalongkorn University-Economics Department

Bangkok
Thailand

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