On the predictive power of CAPE or Shiller’s PE ratio: the case of the Greek stock market
Operational Research
; 22(4):3747-3766, 2022.
Article
in English
| ProQuest Central | ID: covidwho-2014540
ABSTRACT
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.
Business And Economics--Management; Returns forecasting; FTSE/ASE large cap index; CAPE ratio; Efficient market hypothesis; Profits; Regression models; Research; Stock exchanges; Efficient markets; Valuation; Political science; Severe acute respiratory syndrome coronavirus 2; Hypotheses; Power; Ratios; Securities markets; Economics
Full text:
Available
Collection:
Databases of international organizations
Database:
ProQuest Central
Type of study:
Prognostic study
Language:
English
Journal:
Operational Research
Year:
2022
Document Type:
Article
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