Is the Market Overvalued?

Stock market returns have been phenomenal over the last 10 years. The Real S&P Composite Total Return Index averaged 9.14% in the ten years since September 2008. The historical average of the Index since 1881 is just 6.48%. One might then wonder how likely these above-average returns are expected to continue. Academic studies by Fama-French and others have found a significant statistical relationship between long run security returns and ratios of market value relative to accounting-based measures of cash flow such as earnings, sales, and dividends. One of those ratios is the Total Return Cyclically Adjusted Price-Earnings Ratio (TR CAPE) developed by Professor Robert Shiller (2014) at Yale

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