Schiller PE Ratio
Description
The Shiller P/E Ratio, also known as the Cyclically Adjusted Price-to-Earnings (CAPE) Ratio, is a valuation measure that compares the current price of the S&P 500 index to the average inflation-adjusted earnings of the index over the past 10 years. This ratio was popularized by economist Robert Shiller and is used to assess whether the stock market is overvalued or undervalued relative to historical norms.
Unlike the traditional P/E ratio, which uses only the most recent earnings, the Shiller P/E Ratio smooths out fluctuations in corporate profits that occur over a business cycle. This makes it a more reliable indicator of long-term market trends and potential future returns. A high Shiller P/E Ratio suggests that the market is overvalued and may be due for a correction, while a low ratio indicates that the market may be undervalued and could offer good investment opportunities.