Shiller’s CAPE and Forward Excess Returns in India

11 Pages Posted: 11 Jul 2022

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Date Written: July 7, 2022


We show an inverse relationship between elevated valuations (high CAPE) and forward excess returns over 1, 3, 5, and 10 years in India, similar to other international studies. At the end of June 2022, as measured by Shiller Barclays CAPE, valuation is at the 77th percentile of its historical distribution. There is a reasonable probability (40%) that 1-year forward returns are negative when CAPE is in its highest quintile. While “time in the market” reduces the chance of negative forward excess returns, these returns are still lower than entering at lower quintiles of CAPE. Longer-term, forward excess returns have significant variability. Therefore, CAPE on its own has limited use for market timing. However, the inverse relationship implies that investors should lower their forward excess return expectations and consider longer investment time horizons when starting CAPE is high without sound economic rationale.

Keywords: Shiller-PE, cyclically adjusted PE, equity market returns, India

JEL Classification: G00, G11, G12

Suggested Citation

Raju, Rajan, Shiller’s CAPE and Forward Excess Returns in India (July 7, 2022). Available at SSRN: or

Rajan Raju (Contact Author)

Invespar Pte Ltd ( email )


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