QuietGrowth Blog

Should we worry about the Shiller PE Ratio?

Shiller Earnings to Real-Bond-Yield Gap

The rise in global equity prices in recent years has led to continued concerns over valuation levels. One indicator that appears to cause endless nervousness is the so-called “Shiller” PE ratio, which considers US stock prices relative to the rolling 10-year average level of earnings. As this note demonstrates, however, the Shiller PE ratio has proven to be a poor short-run market timing tool. And while it has proven to be a reasonable guide for likely longer-run returns in the past, allowance today needs to be made for the large structural decline in interest rates.


Left in the dirt: What’s driving our sharemarket performance?

Left in the dirt: What’s driving our sharemarket performance?

The Australian sharemarket has struggled to match the performance of global peers in recent years. While a number of theories have been put forward to explain our relatively poor returns, this note suggests two factors tend to dominate: trends in export commodity prices and the health of the global technology sector. On this basis, it seems likely our market could struggle against global peers for some time yet.


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