Shiller P/E Ratio

The Shiller P/E Ratio, also known as the Cyclically Adjusted Price-to-Earnings (CAPE) ratio, measures stock market valuation by comparing current stock prices to average earnings over the past 10 years, adjusted for inflation. This longer-term perspective smooths out short-term fluctuations and provides a more stable view of whether stocks are relatively expensive or cheap. A high Shiller P/E suggests stocks might be overvalued, potentially indicating lower future returns, while a low ratio suggests they may be undervalued, possibly offering better investment opportunities. It helps investors assess market valuation with a longer-term lens.