Called the Shiller P/E ratio after Yale University professor Robert Shiller, the CAPE ratio is a cyclically adjusted price-to-earnings ratio.
With this metric, companies may smooth out changes in profits throughout an economic cycle by looking at their actual earnings per share (EPS) for at least ten years.
To compute the CAPE ratio, the price of a company’s stock is divided by the average of its ten-year profits, adjusted for inflation.
The CAPE ratio may be used to assess whether a stock is over or undervalued and evaluate a publicly-traded company’s long-term financial results while taking into account the effects of several economic cycles on its profits.
ACCORDING TO THE THEORY, traditional P/E ratios may be strongly impacted by cyclical swings in corporate profitability. The CAPE ratio smooths out the peaks and valleys of the market.
In 1996, Robert Shiller & John Campbell presented data to the Federal Reserve that suggested stock values in the United States were rising far faster than earnings. This was the first time the CAPE ratio came to light.
“Valuation Ratios or the Long-Run Stock Market Outlook” by Shiller and Campbell used the CAPE ratio to examine S&P 500 earnings dating back to 1872 in their 1998 study.
According to these researchers ‘ results, one other time, the ratio reached a record 28 occurred in 1929.
A 40 per cent decline in real market value over the next decade was forecast using this ratio, and the 2008 market meltdown led to a 60 per cent drop in the S&P 500’s value between October 2007 to March 2009.
In June 2018, the CAPE ratio was 33.78, which was much higher than just its long-term average of 16.80 and just the second time, the ratio topped 30 since 1929. According to the ratio, the market may see an enormous correction.
Also See: Billionaires by Country 2022
In other words, the CAPE ratios of various nations may vary, but they shouldn’t be compared directly. Compare a country’s current CAPE ratio to its historical average to assess whether the stock market is cheap or overpriced.
As of June 30, 2020, the CAPE ratios of the world’s top economies are shown below:
- Canada 21.67
- The United States 29.35
- The United Kingdom 13.22
- Italy 18.71
- Spain 12.36
- Russia 8.21
- India 23.29
- Japan 19.00
- China 15.82
- Hong Kong 12.70
- Australia 15.70
Country | 2022 Population |
---|---|
Vatican City | 0.7990 |
Tokelau | 1.3780 |
Niue | 1.6220 |
Falkland Islands | 3.5390 |
Montserrat | 4.9650 |
Saint Pierre and Miquelon | 5.7590 |
Saint Barthelemy | 9.9450 |
Nauru | 10.9030 |
Wallis and Futuna | 10.9820 |
Tuvalu | 12.0660 |
Anguilla | 15.2300 |
Cook Islands | 17.5710 |
Palau | 18.2330 |
British Virgin Islands | 30.5960 |
Gibraltar | 33.7040 |
San Marino | 34.0850 |
Liechtenstein | 38.3870 |
Saint Martin | 39.7300 |
Turks and Caicos Islands | 39.7410 |
Monaco | 39.7830 |
Sint Maarten | 43.9660 |
Faroe Islands | 49.2330 |
Saint Kitts and Nevis | 53.8710 |
American Samoa | 55.0300 |
Greenland | 56.9730 |
Northern Mariana Islands | 58.2690 |
Marshall Islands | 60.0570 |
Bermuda | 61.9390 |
Cayman Islands | 67.2770 |
Dominica | 72.3440 |
Andorra | 77.4630 |
Isle of Man | 85.7320 |
Seychelles | 99.4260 |
Antigua and Barbuda | 99.5090 |
United States Virgin Islands | 103.9710 |
Aruba | 107.6090 |
Tonga | 107.7490 |
Saint Vincent and the Grenadines | 111.5510 |
Grenada | 113.4750 |
Micronesia | 117.4890 |
Kiribati | 123.4190 |
Curacao | 165.5290 |
Guam | 171.5190 |
Saint Lucia | 185.1130 |
Samoa | 202.2390 |
Sao Tome and Principe | 227.6790 |
French Polynesia | 284.1640 |
Mayotte | 286.2590 |
Barbados | 288.0230 |
New Caledonia | 290.9150 |
French Guiana | 314.1690 |
Vanuatu | 321.8320 |
Iceland | 345.3930 |
Martinique | 374.0870 |
Guadeloupe | 399.7940 |
Bahamas | 400.5160 |
Belize | 412.1900 |
Malta | 444.0330 |
Brunei | 445.4310 |
Maldives | 540.9850 |
Cape Verde | 567.6780 |
Suriname | 596.8310 |
Western Sahara | 626.1610 |
Montenegro | 627.9500 |
Luxembourg | 642.3710 |
Macau | 667.4900 |
Solomon Islands | 721.1590 |
Bhutan | 787.9410 |
Guyana | 794.0450 |
Comoros | 907.4190 |
Reunion | 908.0610 |
Fiji | 909.4660 |
Djibouti | 1016.0970 |
Eswatini | 1184.8170 |
Cyprus | 1223.3870 |
Mauritius | 1274.7270 |
Estonia | 1321.9100 |
Timor-Leste | 1369.4290 |
Trinidad and Tobago | 1406.5850 |
Equatorial Guinea | 1496.6620 |
Bahrain | 1783.9830 |
Latvia | 1848.8370 |
Guinea-Bissau | 2063.3670 |
Slovenia | 2078.0340 |
North Macedonia | 2081.3040 |
Lesotho | 2175.6990 |
Gabon | 2331.5330 |
Botswana | 2441.1620 |
Gambia | 2558.4820 |
Namibia | 2633.8740 |
Lithuania | 2661.7080 |
Puerto Rico | 2829.8120 |
Albania | 2866.3740 |
Armenia | 2971.9660 |
Qatar | 2979.9150 |
Jamaica | 2985.0940 |
Bosnia and Herzegovina | 3249.3170 |
Mongolia | 3378.0780 |
Uruguay | 3496.0160 |
Eritrea | 3662.2440 |
Georgia | 3968.7380 |
Moldova | 4013.1710 |
Croatia | 4059.2860 |
Kuwait | 4380.3260 |
Panama | 4446.9640 |
New Zealand | 4898.2030 |
Mauritania | 4901.9810 |
Central African Republic | 5016.6780 |
Ireland | 5020.1990 |
Costa Rica | 5182.3540 |
Liberia | 5305.1170 |
Oman | 5323.9930 |
Palestine | 5345.5410 |
Slovakia | 5460.1930 |
Norway | 5511.3700 |
Finland | 5554.9600 |
Republic of the Congo | 5797.8050 |
Denmark | 5834.9500 |
Singapore | 5943.5460 |
Turkmenistan | 6201.9430 |
El Salvador | 6550.3890 |
Lebanon | 6684.8490 |
Kyrgyzstan | 6728.2710 |
Nicaragua | 6779.1000 |
Bulgaria | 6844.5970 |
Libya | 7040.7450 |
Paraguay | 7305.8430 |
Laos | 7481.0230 |
Hong Kong | 7604.2990 |
Sierra Leone | 8306.4360 |
Serbia | 8653.0160 |
Togo | 8680.8370 |
Switzerland | 8773.6370 |
Israel | 8922.8920 |
Austria | 9066.7100 |
Papua New Guinea | 9292.1690 |
Belarus | 9432.8000 |
Hungary | 9606.2590 |
Tajikistan | 9957.4640 |
United Arab Emirates | 10081.7850 |
Portugal | 10140.5700 |
Sweden | 10218.9710 |
Honduras | 10221.2470 |
Azerbaijan | 10300.2050 |
Jordan | 10300.8690 |
Greece | 10316.6370 |
Czech Republic | 10736.7840 |
Dominican Republic | 11056.3700 |
Cuba | 11305.6520 |
South Sudan | 11618.5110 |
Belgium | 11668.2780 |
Haiti | 11680.2830 |
Bolivia | 11992.6560 |
Tunisia | 12046.6560 |
Burundi | 12624.8400 |
Benin | 12784.7260 |
Rwanda | 13600.4640 |
Guinea | 13865.6910 |
Zimbabwe | 15331.4280 |
Somalia | 16841.7950 |
Cambodia | 17168.6390 |
Netherlands | 17211.4470 |
Chad | 17413.5800 |
Senegal | 17653.6710 |
Ecuador | 18113.3610 |
Guatemala | 18584.0390 |
Romania | 19031.3350 |
Kazakhstan | 19205.0430 |
Chile | 19250.1950 |
Syria | 19364.8090 |
Zambia | 19470.2340 |
Malawi | 20180.8390 |
Mali | 21473.7640 |
Sri Lanka | 21575.8420 |
Burkina Faso | 22102.8380 |
Taiwan | 23888.5950 |
North Korea | 25990.6790 |
Australia | 26068.7920 |
Niger | 26083.6600 |
Ivory Coast | 27742.2980 |
Cameroon | 27911.5480 |
Madagascar | 29178.0770 |
Venezuela | 29266.9910 |
Nepal | 30225.5820 |
Yemen | 31154.8670 |
Ghana | 32395.4500 |
Mozambique | 33089.4610 |
Malaysia | 33181.0720 |
Peru | 33684.2080 |
Uzbekistan | 34382.0840 |
Angola | 35027.3430 |
Saudi Arabia | 35844.9090 |
Poland | 37739.7850 |
Morocco | 37772.7560 |
Canada | 38388.4190 |
Afghanistan | 40754.3880 |
Iraq | 42164.9650 |
Ukraine | 43192.1220 |
Algeria | 45350.1480 |
Sudan | 45992.0200 |
Argentina | 46010.2340 |
Spain | 46719.1420 |
Uganda | 48432.8630 |
South Korea | 51329.8990 |
Colombia | 51512.7620 |
Myanmar | 55227.1430 |
Kenya | 56215.2210 |
Italy | 60262.7700 |
South Africa | 60756.1350 |
Tanzania | 63298.5500 |
France | 65584.5180 |
United Kingdom | 68497.9070 |
Thailand | 70078.2030 |
Germany | 83883.5960 |
Turkey | 85561.9760 |
Iran | 86022.8370 |
DR Congo | 95240.7920 |
Vietnam | 98953.5410 |
Egypt | 106156.6920 |
Philippines | 112508.9940 |
Ethiopia | 120812.6980 |
Japan | 125584.8380 |
Mexico | 131562.7720 |
Russia | 145805.9470 |
Bangladesh | 167885.6890 |
Brazil | 215353.5930 |
Nigeria | 216746.9340 |
Pakistan | 229488.9940 |
Indonesia | 279134.5050 |
United States | 334805.2690 |
India | 1406631.7760 |
China | 1448471.4000 |