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Shiller Wonders Why the Stock Market is So Expensive
>> Many are concerned that they might lose their jobs to cost-cutting, or that they might eventually be replaced by a computer or robot or website. Such anxiety might push them to try to make up for these potential shortfalls by investing in stocks and bonds — even if they worry that these assets are overvalued.
huh? he does not appear to be reading the data about who invests these days, seems to me
A nice sharp comment from the current Malkiel WSJ piece, which is weak, by a James Lear:
\\\ The CAPE analysis by Dr. Schiller is an example of sophisticated mathematics done badly. Two reasons: 1) the "cyclically adjusted" portion of his index is a 10-year moving average on *earnings* (the denominator of CAPE) but not on the price. The SMA is a common tool in electrical engineering signal processing. It removes high frequency noise but it also delays the signal by 1/2 the period of the moving average. In this case, the delay is 5-years. It turns out that it is the delay that makes CAPE seem work as a predictor, not the filtering. In other words, we can use today's price divided by earnings from five years ago, and voila we have something very similar to CAPE. The beauty of using the delayed 5-year earnings as opposed to the SMA is we can roll forward (e.g. look at 4-year earnings) and look ahead at what Schiller's CAPE will be in the future at today's prices. 2) The CAPE correlation coefficients are low.
Comments
huh? he does not appear to be reading the data about who invests these days, seems to me
\\\ The CAPE analysis by Dr. Schiller is an example of sophisticated mathematics done badly. Two reasons:
1) the "cyclically adjusted" portion of his index is a 10-year moving average on *earnings* (the denominator of CAPE) but not on the price. The SMA is a common tool in electrical engineering signal processing. It removes high frequency noise but it also delays the signal by 1/2 the period of the moving average. In this case, the delay is 5-years. It turns out that it is the delay that makes CAPE seem work as a predictor, not the filtering. In other words, we can use today's price divided by earnings from five years ago, and voila we have something very similar to CAPE. The beauty of using the delayed 5-year earnings as opposed to the SMA is we can roll forward (e.g. look at 4-year earnings) and look ahead at what Schiller's CAPE will be in the future at today's prices.
2) The CAPE correlation coefficients are low.