CAPE (Price to 10 Year Average Earnings)

What is the definition of CAPE (Graham & Dodd P/E)?

The Price to Earnings Ratio (also called the PE ratio) is the primary valuation ratio used by most equity investors. It is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share.

The Graham & Dodds price-to-earnings ratio, commonly known as CAPE or Shiller P/E, is a valuation measure usually applied to stocks or equity markets. It is defined as price divided by the average of ten years of earnings.


Stockopedia explains CAPE (Graham & Dodd P/E)...

Value investors Benjamin Graham and David Dodd argued for smoothing a firm's earnings over the past five to ten years in their classic text Security Analysis. Graham and Dodd noted one-year earnings were too volatile to offer a good idea of a firm's true earning power.

Decades later, Yale economist Robert Shiller popularized the 10-year version of Graham and Dodd's P/E as a way to value the stock market. Robert Shiller maintains a time-series of US CAPE here.

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