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News Link • Economy - Economics USA

ROBERT SHILLER: Even I Don't Trust The Shiller P/E Ratio

• http://www.businessinsider.com,
 Everybody knows Robert Shiller as the brilliant economist who predicted the dotcom bubble and then the housing bubble.

In new interview with Money Magazine's Penelope Wang, Shiller offers some bad news for stock market investors.

Citing his 10-year cyclically-adjusted price-earnings ratio (aka CAPE ratio aka Shiller PE), Shiller estimates that the expected long-run inflation adjusted return on the stock market is just 4 percent.

But he warns that even he doubts the predictive power of his namesake ratio.

From Money Magazine:

A real 4% return seems like a worthwhile investment.

Then again, I don't know that I trust that number. It goes back to this whole academic literature on the outperformance of equities.

My old friend Jeremy Siegel [Wharton professor and author of "Stocks for the Long Run"] makes the strongest claim about this. He has data going back 200 years showing that the market has had a real 7% return over that period.



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