Today, Robert Shiller provides updated data on the key variables used to calculate PE10 at his website. The concept stems from Benjamin Graham and David Dodd’s classic Security Analysis text, first published in the 1930s, which suggests using a period of seven to ten years to average out business cycles from the earnings data. The PE10 measure is found using the following formula:Ī 1998 research article published by John Campbell and Shiller justifies this measure as a way to remove cyclical factors from earnings, though there is no particular reason to pick ten years. In the mid-1990s, Yale professor and Nobel laureate Robert Shiller popularized the concept of the cyclically-adjusted price-earnings ratio (commonly abbreviated either as CAPE or PE10) as a useful predictor of subsequent stock market returns. But that hasn’t stopped people from trying, and it doesn’t necessarily mean we should ignore them all. Market predictors have taken many forms over the years, but no formula or person has ever gotten it completely right.
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