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Shiller

CAPE / Shiller PE RatioThe CAPE (Cyclically Adjusted Price-to-Earnings) or Shiller PE ratio is a popular valuation measure used by investors to assess whether a stock or index is over or undervalued relative to its historical earnings. Unlike the traditional P/E ratio, the CAPE ratio smooths earnings over ten years, adjusting for inflation and providing a more stable and long-term view of valuation. This indicator lets you quickly calculate and visualize the CAPE ratio for any stock on TradingView, helping you make informed decisions about the sustainability of current price levels. With its clear presentation and intuitive setup, you can compare historical CAPE levels and identify potential opportunities for long-term investments or avoid overvalued markets. Advantages of the CAPE Ratio: Long-Term Focus : Smooth earnings over ten years, reducing the impact of short-term volatility. Inflation-Adjusted : Provides a more precise, inflation-adjusted valuation measure over time. Historical Comparison : Allows for benchmarking against long-term historical averages. Market Sentiment Indicator : Can highlight overvalued or undervalued markets for long-term investors. Reduces Noise : Filters out short-term earnings fluctuations, offering a more stable view. Disadvantages of the CAPE Ratio: Ignores Recent Earnings : Misses short-term earnings changes, which can affect current valuations. Outdated Data : Relies on old earnings data that may not reflect recent company performance. Less Effective for Growth Stocks : May undervalue high-growth stocks focused on future earnings. Sector Limitations : Works best for broad markets, less so for fast-changing industries. Debated Predictive Power : It’s unreliable for timing short-term market movements. In short, the CAPE ratio is excellent for long-term valuation but has limitations for short-term or growth-focused investing. Disclaimer Please remember that past performance may not be indicative of future results. Due to various factors, including changing market conditions, the strategy may no longer perform as well as in historical backtesting. This post and the script don’t provide any financial advice.
Pine Script™ indicator
by QuantNomad
SP500 Earnings Yield Spread: SP500 vs 3 Month & 10 Year TreasuryAdd the SP500 ttm Earnings Yield Spreads vs the 3 Month and 10 Year Treasury Rates. Short Spread = SP500 E/P ttm - 3 Month Treasury Rate Long Spread = SP500 E/P ttm - 10 Year Treasury Rate Symbol "SP500_EARNINGS_YIELD_MONTH" as the SP500 Earnings Yield Symbol "US03MY" as the 3 Month Treasury Rate Symbol "US10Y" as the 10 Year Treasury Rate Based on research suggesting Earnings Yield and Interest Rates may have predictive power of future returns: - Market-Timing Strategies That Worked? - Pu Shen - Valuation Ratios and the Long-Run Stock Market Outlook - Campbell and Shiller Inputs: Short Term Spread - Line for Short Term Spread Long Term Spread - Line for Long Term Spread Zero Line - Horizontal line at 0 Color Lines Based on Spread - Color the spreads green/red if spread is positive/negative Short 10th PCT - Line for Short Term Spread 10th percentile of historical values Long 10th PCT - Line for Long Term Spread 10th percentile of historical values Shade Below 10 PCT: Spread Must be Negative - Requirement the spread is negative to shade background Shade Background Below Short 10th Percentile - Shade the background if the Short Term Spread is below its 10th percentile. (and spread is negative if input above chosen) Shade Background Below Long 10th Percentile - Shade the background if the Long Term Spread is below its 10th percentile. (and spread is negative if input above chosen)
Pine Script™ indicator
by goodmonke
SPX Excess CAPE YieldHere we are looking at the Excess CAPE yield for the SPX500 over the last 100+ years "A higher CAPE meant a lower subsequent 10-year return, and vice versa. The R-squared was a phenomenally high 0.9 — the CAPE on its own was enough to explain 90% of stocks’ subsequent performance over a decade. The standard deviation was 1.37% — in other words, two-thirds of the time the prediction was within 1.37 percentage points of the eventual outcome: this over a quarter-century that included an equity bubble, a credit bubble, two epic bear markets, and a decade-long bull market." assets.bwbx.io In December of 2020 Dr. Robert Shiller the Yale Nobel Laurate suggested that an improvement on CAPE could be made by taking its inverse (the CAPE earnings yield) and subtracting the us10 year treasury yield. "His model plainly suggests that stocks will do badly over the next 10 years, and that bonds will do even worse. This was the way Shiller put it in a research piece for Barclays Plc in October, (which can be found on SSRN Below): In summary, investors expect a certain return in equities as compensation for investing in a riskier asset class, and as interest rates have declined, the relative expected return for equities has increased dramatically. We believe this may quantitatively help to explain investors current preference for equities over bonds, and as such the quick recoveries we are observing (with the exception of the UK), whilst still in the midst of a pandemic. In the US in particular, we are once again observing stretched valuations and high CAPE ratios compared to history." Sources: papers.ssrn.com www.bloomberg.com The standard trading view disclaimer applies to this post -- please consult your own investment advisor before making investment decisions. This post is for observation only and has no warranty etc. www.tradingview.com Best, JM
Pine Script™ indicator
by JM
2
SHILLER_PE_RATIO_MONTHDISCRIPTION Shiller PE ratio for the S&P 500. Price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio) TIME FRAME 1M HOW TO USE It provide historic Shiller PE which will provide over-bought or over-sold condition historically from 19th century. MODIFICATION When the pe ratio crosses 30 considered as Greed When the pe ratio fall below 15 considered as Fear
Pine Script™ indicator
by aftabmk