Does P/E10 (or Cyclically Adjusted Price-Earnings ratio, CAPE) usefully predict U.S. stock market returns? Per Robert Shiller's data, P/E10 is inflation-adjusted S&P Composite Index level divided by average monthly inflation-adjusted 12-month trailing earnings of index companies over the last ten years. To investigate its usefulness, we consider in-sample regression/ranking tests and out-of-sample cumulative performance tests. Using monthly values of P/E10, S&P Composite Index levels (calculated as average of daily closes during the month), associated dividends (smoothed), 12-month trailing real earnings (smoothed) and interest rates as available during January 1871 through September 2025, we find that:
Subscribe to Keep Reading
Get the research edge serious investors rely on.
- 1,200+ research articles
- Monthly strategy signals
- 20+ years of backtested analysis
Cancel anytime
