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On the predictive power of CAPE or Shiller’s PE ratio: the case of the Greek stock market

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  • Dimitrios Kenourgios

    (National and Kapodistrian University of Athens)

  • Spyros Papathanasiou

    (National and Kapodistrian University of Athens)

  • Anastasia Christina Bampili

    (Hellenic Open University)

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.

Suggested Citation

  • Dimitrios Kenourgios & Spyros Papathanasiou & Anastasia Christina Bampili, 2022. "On the predictive power of CAPE or Shiller’s PE ratio: the case of the Greek stock market," Operational Research, Springer, vol. 22(4), pages 3747-3766, September.
    • Handle: RePEc:spr:operea:v:22:y:2022:i:4:d:10.1007_s12351-021-00658-x
    DOI: 10.1007/s12351-021-00658-x
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    References listed on IDEAS

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