A Prognostic Yield Measure for Country Selection in the Medium Term Using Shiller’s PE

Radha, S.

doi:10.3905/jii.2018.1.060

Cited by 4 publications

(3 citation statements)

References 4 publications

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“…The study also shows that using accounting-flow variables such as cash flow and sales revenues in place of earnings and cyclically adjusted earnings can effectively supplement, and even enhance, CAPE's market return forecasts. More recent studies that confirm the usefulness of Shiller's CAPE for stock return forecasts are Keimling (2016) and Radha (2018) for highly developed countries, or Klement (2012;2015), also for emerging markets. Finally, Philips and Kobor (2020) simplify the CAPE methodology by separating the filtering of noise from the detection of cyclicality in earnings.…”

Section: Literature Reviewmentioning

confidence: 93%

Predictability of Stock Returns in Central and Eastern European Countries

Pietraszewski

2022

Folia Oeconomica

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Stock return predictability in highly developed countries has both empirical and theoretical justification in financial literature. The article aims to answer the question if market valuation ratios that relate share prices to various accounting quantities have any predictive power for long-term stock index returns on investments in capital markets of some Central and Eastern European countries, namely the Czech Republic, Hungary, Poland, and Russia. Heteroskedasticity and autocorrelation-consistent estimators with a small-sample degrees of freedom adjustment were used in regressions to track the overlapping data problem and small sample bias. The results of an investigation show that some of these ratios, such as price to a ten-year moving average of real earnings, commonly known as the cyclically adjusted price earnings (CAPE) ratio, price to estimated profits, market to book value and price to sales revenues have a strong predictive power for cumulative returns mainly over long horizons. On the other hand, price to one-year earnings, dividend yield or price to cash flow ratios prove to be quite poor predictors. Following the arguments of behavioural finance, we conclude that the evidence obtained in the study proving a fairly significant link between current values of market ratios and future cumulative returns indicates a certain degree of ineffectiveness of the analysed markets during the examined period.

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Section: Literature Reviewmentioning

confidence: 93%

Predictability of Stock Returns in Central and Eastern European Countries

Pietraszewski

2022

Folia Oeconomica

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“…Extant research focuses heavily on the USA market and therefore, international research using the CAPE ratio has been left somewhat neglected. Radha (2018) used the inverse CAPE ratio metric, CY-M, commonly known as the medium-term country yield, to forecast stock market returns in 46 countries including the USA and used a cyclically adjusted real exchange rate to augment the model and enhance performance.…”

Section: Cape Applicationsmentioning

confidence: 99%

A modified Shiller's cyclically adjusted price-to-earnings (CAPE) ratio for stock market index valuation in a zero-interest rate environment

Catanho

Saville

2022

Investment Analysts Journal

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The cyclically adjusted price-earnings ratio (CAPE) is a tool that has become widely used to predict market returns. However, recently, deterioration in its forecast strength has surfaced. At the same time, global long-term interest rates have declined and are expected to remain at record lows, which the CAPE fails to consider, and which represents a gap in knowledge. This study uses a modified CAPE to account for interest rates, known as the excess CAPE yield (ECY), to offer an alternative -and potentially improved -model for predicting global stock market returns. We find that CAPEs peak when real interest rates are between 3% and 5%, while the ECY fails to improve on the predictive abilities of the CAPE.

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“…Additionally, the fact that the CAPE ratio has been able to predict two forthcoming crises, i.e. the dot-com bubble (2002) and the housing bubble (2007–2009), has made it very attractive (Philips and Kobor 2020 ; Radha 2018 ; McMillan 2019 ; Samitas, et al 2020 ).…”

Section: Introductionmentioning

confidence: 99%

On the predictive power of CAPE or Shiller’s PE ratio: the case of the Greek stock market

2021

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This paper examines the capability of the Cyclically Adjusted Price to Earnings (CAPE) or Shiller's P/E ratio, along with other relative valuation ratios such as the P/E and the P/BV, to predict future returns of the FTSE/ASE Large Cap Index, starting from the development of the index (1997) to December 2018. We have herein used several regression models in order to examine the relationship between the above ratios and the future returns of 1, 3, 5 and 10 years. We show that, while P/E and P/BV ratios are not correlated to future returns, the CAPE ratio and its variation CAPE 5, which uses real 5 year earnings, are efficient estimators of future returns. Our results imply the informational inefficiency of the Greek Stock Market.

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A Prognostic Yield Measure for Country Selection in the Medium Term Using Shiller’s PE

Cited by 4 publications

References 4 publications

Predictability of Stock Returns in Central and Eastern European Countries

Predictability of Stock Returns in Central and Eastern European Countries

A modified Shiller's cyclically adjusted price-to-earnings (CAPE) ratio for stock market index valuation in a zero-interest rate environment

On the predictive power of CAPE or Shiller’s PE ratio: the case of the Greek stock market

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