Robeco examines whether the traditional CAPE ratio meaningfully captures equity risk, arguing that valuation alone may miss downside dynamics investors actually experience. The paper challenges the assumption that high CAPE reliably signals poor outcomes, suggesting risk varies materially across regimes and time horizons.
Risky CAPE: Repair The Roof When The Sun Is Shining
Robeco
Pim van Vliet
Research
10 Pages
Key Takeaways
Weak Return Linkage: High CAPE periods still delivered positive returns in over 60% of rolling 3-year windows, complicating the narrative that elevated valuations consistently predict losses.
Downside Risk Dispersion: The worst 20% of outcomes showed drawdowns exceeding -30%, while median outcomes remained positive, highlighting asymmetric risk across valuation buckets.
Time Horizon Sensitivity: CAPE’s predictive power improves over 10-year horizons but weakens materially over 1–3 years, with correlation dropping below 0.3 in shorter periods.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
