StarCapital examines whether Shiller CAPE can reliably forecast long term equity returns across global markets. The paper argues valuation still matters despite criticism around accounting changes and payout ratios while suggesting cheaper regions like Europe and emerging markets offered stronger forward return potential in 2016.
Predicting Stock Market Returns Using the Shiller-CAPE
StarCapital Research
Norbert Keimling
Research
32 Pages
Key Takeaways
CAPE Predictive Power: Across 17 MSCI country indexes since 1979, lower CAPE readings consistently aligned with stronger long term real equity returns.
Valuation Extremes Matter: S&P 500 CAPE exceeded 22 only 4 times since 1881, with investors often facing negative real returns across the following 10 to 20 years.
Emerging Markets Advantage: The paper estimated emerging markets could deliver 9% real returns versus 4.3% for the U.S. based on CAPE and price to book valuations.
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