With the debate about the valuation of the US stock market continuing to rage, one factor which is often overlooked is the importance of choosing the correct long-term average with which to compare its current level. When it comes to Shiller’s well-known cyclically-adjusted price/earnings ratio, the correct answer is the harmonic average, not the arithmetic average. Esoteric as this may sound, it actually makes quite a big difference when comes to gauging the extent of the market’s overvaluation.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services