Robert Shiller's CAPE Measures Stock Market Valuation
Yale University economist Robert Shiller developed the cyclically adjusted price-to-earnings ratio, CAPE, as a valuation measure for the broad stock market. Using S&P earnings from January 1871 to the present, CAPE averages ten years of real earnings instead of the usual one year in the conventual price-to-earnings ratio. CAPE tends to smooth out periodic excesses in earnings.
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See Dueling Prisms for Valuing Stocks - a New York Times article for a discussion of the pros and cons of CAPE.
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