Cyclically adjusted price-to-earnings ratio

The cyclically adjusted price to earnings ratio, also called CAPE or the Shiller P/E, is a stock market valuation measure equal to the price of a stock index divided by the average of its constituent companies inflation adjusted earnings over the preceding ten years. It was devised by economist Robert Shiller, who later popularized the ten year version as a way of valuing the S&P 500 and shared the 2013 Nobel Prize in Economic Sciences for his work on asset price analysis. Averaging a decade of earnings smooths out the distortions of short term earnings volatility and the business cycle, so the ratio is used mainly to gauge probable long term equity returns over the following ten to twenty years: a higher than average CAPE suggests lower future returns are likely, while a lower than average CAPE suggests higher future returns are likely. This description is adapted from Wikipedia contributors under CC BY-SA 4.0; changes were made. https://creativecommons.org/licenses/by-sa/4.0/