Backtesting Stock Market Returns Using the CAPE Calculator

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 500 monthly price and earnings data from Shiller and found at Quandl, 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.

The current CAPE is 31.77. The average, low and high CAPE values from January 1881 to the present are: 16.88, 4.78 (December 1920) and 44.20 (December 1999).

Use the CAPE Calculator to analyze the possible direction of stock prices and average returns given a selected CAPE. The calculator uses historical monthly prices and CAPE values from the Shiller CAPE data to compute the percentage of positive returns and the average return for one-, five-, ten- and twenty-year periods.

You can enter any CAPE that is greater than zero. Press the Calculate button and the calculator displays the results for the selected CAPE and the average CAPE for the entire series of values. mmm

CAPE Calculator
CAPE Value:

How the CAPE Calculator Works

For each of the four time intervals (one-, five-, ten- and twenty-years) the calculator computes all past returns using prices prices where the CAPE value is greater than the one selected in the form. Next, it counts the number of returns (profitable and non profitable) and then it counts the number of these returns that are profitable. It then divides the number of profitable returns by the total number of returns to obtain the percentage of profitable returns.

Finally, the calculator computes the average return and average annual return for all returns (profitable and non profitable) associated with a CAPE value greater than the one entered on the form.

Interpreting the CAPE Calculator Results

All calculator results are based on historical prices and CAPE values so use caution when projecting results into the future. Historical patterns of CAPE values may not occur in the future. And just because the current CAPE value is relatively high or low doesn't preclude it from going higher or lower.

See S&P 500 Cyclically Adjusted Price Earnings Ratio (CAPE) Chart Maker - Robert Shiller Long-term Stock Data for a chart of all CAPE values.