The site Guru Focus has a cool interactive feature that lets you pull your mouse across their charts for a better sense of the annual dance between PE ratio, CAPE ratio, interest rates and returns. Below is the chart of implied return from today’s valuation given the following:
Shiller P/E Implied Market Return
If we assume that over the long term, the Shiller P/E of the market will reverse to its historical mean of $mean, the future market return will come from three parts:
- Contraction or expansion of the Schiller P/E to the historical mean
- Dividends
- Business growth
The investment return is thus equal to:
Investment Return (%) = Dividend Yield (%) + Business Growth(%) + (Mean_Shiller_PE/Current_Shiller_PE)(1/T)-1
From this we will estimate that at the Shiller P/E’s current level, the future market return will be around 1.2% a year. This is the historical implied return, actual return and long term interest. Interest rate does have an impact on the market returns.

Follow the link below for the interactive version:
Shiller P/E – A Better Measurement Of Market Valuation (GuruFocus)
… [Trackback]
[…] Here you can find 31584 more Info to that Topic: thereformedbroker.com/2014/04/27/shiller-cape-vs-implied-return/ […]
… [Trackback]
[…] Info on that Topic: thereformedbroker.com/2014/04/27/shiller-cape-vs-implied-return/ […]
… [Trackback]
[…] Info to that Topic: thereformedbroker.com/2014/04/27/shiller-cape-vs-implied-return/ […]
… [Trackback]
[…] Read More on that Topic: thereformedbroker.com/2014/04/27/shiller-cape-vs-implied-return/ […]
… [Trackback]
[…] There you can find 21630 additional Information to that Topic: thereformedbroker.com/2014/04/27/shiller-cape-vs-implied-return/ […]