Cyclically adjusted price-to-earnings ratio¶

The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market.

Version: v1 · 2026-09-28 · History
Domain-specific #: 8828
Domain group: Social Sciences
Origin domain: Economics & Finance
Subdomains: Equity Valuation, Financial Economics → Economics & Finance

Core Idea¶

Cyclically adjusted price-to-earnings ratio is treated here as the recurring cross-domain formal modeling identity summarized by this source-grounded definition: The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market.

The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market. It is defined as price divided by the average of ten years of earnings (moving average), adjusted for inflation. As such, it is principally used to assess likely future returns from equities over timescales of 10 to 20 years, with higher than average CAPE values implying lower than average long-term annual average returns.

The ratio was invented by American economist Robert J. The ratio is used to gauge whether a stock, or group of stocks, is undervalued or overvalued by comparing its current market price to its inflation-adjusted historical earnings record. It is a variant of the more popular price to earning ratio and is calculated by dividing the current price of a stock by its average inflation-adjusted earnings over the last 10 years.

For Cyclically adjusted price-to-earnings ratio, the abstraction is narrower than the article's general subject matter: a positive case must preserve The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market. Retaining only the name, a familiar example, or a downstream effect is insufficient. The specialist roles and tests remain anchored in cross-domain formal modeling, which is why this identity is domain-specific rather than prime.

How would you explain it like I'm…

Ten-Year Price Check

Imagine you want to buy a lemonade stand. You look at how much money it made each year for the last ten years, find the average, and fix it for things getting more expensive over time. If the stand's price is really high compared with that average, you probably won't get as much money back in the years ahead.

Price vs. Ten-Year Earnings

The cyclically adjusted price-to-earnings ratio, also called CAPE, is a way to judge whether stocks are expensive or cheap. It divides a stock's price by its average earnings, the profits it made, over the last ten years, with those earnings adjusted for inflation so old dollars and new dollars compare fairly. Using ten years smooths out lucky and unlucky years. It is usually used for the whole US stock market, the S&P 500. When CAPE is higher than usual, stocks have tended to earn less per year over the next 10 to 20 years.

Inflation-Adjusted Ten-Year P/E

The cyclically adjusted price-to-earnings ratio, also called CAPE, the Shiller P/E, or P/E 10, is a measure of how expensive stocks are. It divides the current price by the average of the past ten years of earnings, with each year's earnings adjusted for inflation. The ordinary price-to-earnings ratio uses just one year of earnings, which can swing a lot with booms and recessions; averaging over ten years smooths out the business cycle, hence 'cyclically adjusted.' It is usually applied to the US S&P 500 stock market. People use it to judge whether the market is overvalued or undervalued and to estimate long-term future returns: higher-than-average CAPE values have been associated with lower-than-average returns over the next 10 to 20 years.

The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10) is a valuation measure most often applied to the US S&P 500. It is defined as the current price divided by a ten-year moving average of real (inflation-adjusted) earnings. Averaging over a decade dampens the cyclical swings in earnings that make the standard one-year P/E volatile, which is the point of the "cyclical adjustment." It is used to compare current market price with the inflation-adjusted earnings record and so to judge whether a stock or index looks undervalued or overvalued. Its main application is to long horizons: higher-than-average CAPE values have been associated with lower-than-average annualized returns over the following 10 to 20 years. It is a variant of the ordinary P/E ratio, and applying the label requires the ten-year, inflation-adjusted averaging, not merely any price-to-earnings figure.

Structural Signature¶

Sig role-phrases:

Defining carrier — Shiller later popularized the 10-year version of Graham and Dodd's P/E as a way to value the stock market as measured by the S&P 500.
Constitutive relation — Thus, a common debate is whether the inverse CAPE ratio should be further divided by the yield on 10 year Treasuries, a common measure of risk-minimised return.
Operating condition — Research by Norbert Keimling has demonstrated that the same relation between CAPE and future equity returns exists in every equity market so far examined.
Recognition evidence — Research by others has also found CAPE ratios are reliable in estimating market returns over five to ten year periods in many international stock markets.
Admissible variation — It is defined as price divided by the average of ten years of earnings (moving average), adjusted for inflation.
Characteristic consequence — The ratio is used to gauge whether a stock, or group of stocks, is undervalued or overvalued by comparing its current market price to its inflation-adjusted historical earnings record.
Failure boundary — It is a variant of the more popular price to earning ratio and is calculated by dividing the current price of a stock by its average inflation-adjusted earnings over the last 10 years.

What It Is Not¶

Not the whole field of cross-domain formal modeling. The node requires the specific identity stated by The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market.
Not an over-broad reading. However, these data are based on an aggregate collection of analyst estimates which can change quickly, or in some cases, are not regularly updated.
Not an over-broad reading. One proposed reason for this significant time variation is that CAPE does not take into account prevailing risk-free rates of return.
Not an over-broad reading. The fraction of earnings not paid out in dividends is either reinvested in the business or paid out via stock buybacks.
Not automatically P/B ratio. Retrieval proximity does not establish equivalence; the two identities must be compared by carrier, operation, and failure boundary.

Scope of Application¶

Cyclically adjusted price-to-earnings ratio applies literally inside cross-domain formal modeling wherever the source-defined carrier and relation can be established. Its documented habitats include:

Background. From the 1940s, Sir John Templeton used a method adapted from Graham and Dodd, and somewhat similar to the later Shiller P/E, but with the Dow Jones Industrial Index.
Use in forecasting future returns. Reinvesting earnings in the business is done in the expectation of growing future earnings, and this earnings growth should ideally be accounted for when smoothing earnings over the previous ten years for the purpose of predicting long-term future earnings.
Documented setting. As such, it is principally used to assess likely future returns from equities over timescales of 10 to 20 years, with higher than average CAPE values implying lower than average long-term annual average returns.
Documented setting. The ratio is used to gauge whether a stock, or group of stocks, is undervalued or overvalued by comparing its current market price to its inflation-adjusted historical earnings record.
Background. 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.
Background. Graham and Dodd noted one-year earnings were too volatile to offer a good idea of a firm's true earning power.

Outside cross-domain formal modeling, the name should be retained only when these same operational conditions survive; otherwise the comparison belongs to the broader parent Measurement or should be marked as analogy.

Clarity¶

A clear use of Cyclically adjusted price-to-earnings ratio names the carrier, the operative relation, and the conditions under which the source treats the identity as present. The minimal definition is The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market. The strongest recognition evidence in the frozen account is: Research by others has also found CAPE ratios are reliable in estimating market returns over five to ten year periods in many international stock markets. A report should distinguish that evidence from a proxy, consequence, or common implementation. It should also state the qualification However, these data are based on an aggregate collection of analyst estimates which can change quickly, or in some cases, are not regularly updated. so that a reader can reproduce the classification rather than infer it from topical resemblance.

Manages Complexity¶

Cyclically adjusted price-to-earnings ratio compresses multiple cross-domain formal modeling details into a stable diagnostic relation. The source shows both the central mechanism—thus, a common debate is whether the inverse CAPE ratio should be further divided by the yield on 10 year Treasuries, a common measure of risk-minimised return.—and the practical consequence—the ratio is used to gauge whether a stock, or group of stocks, is undervalued or overvalued by comparing its current market price to its inflation-adjusted historical earnings record. This compression makes cases comparable while leaving parameters, conventions, exceptions, and evidential quality explicit. It is lossy by design: local history and implementation details may be omitted only when they do not alter the defining relation.

Abstract Reasoning¶

Type the carrier. Identify the cross-domain formal modeling entities to which the claim applies.
State the relation. Use the source-grounded identity: The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market.
Check operation and conditions. Research by Norbert Keimling has demonstrated that the same relation between CAPE and future equity returns exists in every equity market so far examined.
Demand recognition evidence. Research by others has also found CAPE ratios are reliable in estimating market returns over five to ten year periods in many international stock markets.
Test variation. Change an implementation or setting while preserving it is defined as price divided by the average of ten years of earnings (moving average), adjusted for inflation.
Run the collapse test. Remove the defining operation; if the label still seems equally apt, only a topic or correlate was retained.
Reduce cautiously. When the specialist conditions cannot be carried, route the residual comparison to Measurement.

Knowledge Transfer¶

Within the home domain. Knowledge about Cyclically adjusted price-to-earnings ratio transfers literally when a new case preserves the same carrier type, relation, and recognition test. From the 1940s, Sir John Templeton used a method adapted from Graham and Dodd, and somewhat similar to the later Shiller P/E, but with the Dow Jones Industrial Index. Reinvesting earnings in the business is done in the expectation of growing future earnings, and this earnings growth should ideally be accounted for when smoothing earnings over the previous ten years for the purpose of predicting long-term future earnings.

Beyond the home domain. Transfer the broader Ratio relation when the cross-domain formal modeling-specific differentia cannot be filled. Retain the name Cyclically adjusted price-to-earnings ratio only when the same carrier, operation, and rejection conditions are present literally rather than metaphorically.

Examples¶

Canonical¶

Some financial analysts believe forward-looking metrics, such as forward P/E, are more helpful in determining whether the stock market is over- or under-valued. This case is canonical because it supplies a concrete carrier and lets the defining relation be checked rather than merely named.

Mapped back: carrier → the entities in the documented case; operation → The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market; recognition evidence → Research by others has also found CAPE ratios are reliable in estimating market returns over five to ten year periods in many international stock markets

Applied / In Practice¶

However, these data are based on an aggregate collection of analyst estimates which can change quickly, or in some cases, are not regularly updated. The applied case shows how the identity is used under a second setting or qualification while keeping the same operative relation.

Mapped back: changed setting → Use in forecasting future returns; invariant → The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market; boundary → the case exits the class when however, these data are based on an aggregate collection of analyst estimates which can change quickly, or in some cases, are not regularly updated

Structural Tensions¶

T1 — Stable identity versus admissible variation. However, these data are based on an aggregate collection of analyst estimates which can change quickly, or in some cases, are not regularly updated. The tension matters because emphasizing only one side either dissolves the identity or overstates what the evidence and domain conventions warrant.

Diagnostic: Which changes preserve the defining relation, and which replace it?

T2 — Recognition versus proxy. One proposed reason for this significant time variation is that CAPE does not take into account prevailing risk-free rates of return. The tension matters because emphasizing only one side either dissolves the identity or overstates what the evidence and domain conventions warrant.

Diagnostic: Does the cited evidence establish the identity or only a correlated sign?

T3 — Definition versus implementation. The fraction of earnings not paid out in dividends is either reinvested in the business or paid out via stock buybacks. The tension matters because emphasizing only one side either dissolves the identity or overstates what the evidence and domain conventions warrant.

Diagnostic: Is the observed implementation constitutive, optional, or merely common?

T4 — Scope versus overextension. However, Shiller's views on what CAPE value is a predictor of poor returns have been criticized as overly pessimistic and based on the original definition of CAPE, which fails to take into account changes in accounting standards in the 1990s, which, according to Jeremy Siegel, produce understated earnings. The tension matters because emphasizing only one side either dissolves the identity or overstates what the evidence and domain conventions warrant.

Diagnostic: Can every claimed application fill the same typed roles without metaphor?

T5 — Transfer versus domain accent. Shiller later popularized the 10-year version of Graham and Dodd's P/E as a way to value the stock market as measured by the S&P 500. The tension matters because emphasizing only one side either dissolves the identity or overstates what the evidence and domain conventions warrant.

Diagnostic: Does the receiving case instantiate Cyclically adjusted price-to-earnings ratio literally, co-instantiate Measurement, or only resemble it?

T6 — Autonomy versus reduction. Thus, a common debate is whether the inverse CAPE ratio should be further divided by the yield on 10 year Treasuries, a common measure of risk-minimised return. The tension matters because emphasizing only one side either dissolves the identity or overstates what the evidence and domain conventions warrant.

Diagnostic: What does Cyclically adjusted price-to-earnings ratio distinguish that the broader parent Measurement leaves together?

Structural–Framed Character¶

Cyclically adjusted price-to-earnings ratio is mixed or framed-leaning. Its structural side is the repeatable organization summarized by The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market. Its framed side is the cross-domain formal modeling vocabulary that fixes the carrier, evidence, exceptions, and admissible transformations.

Evaluative weight: the identity can be stated descriptively even when applications carry practical stakes. Human-practice dependence: the source-grounded carrier determines whether the relation exists independently or is constituted by a practice. Institutional origin: disciplinary conventions stabilize the name and test. Vocabulary portability: Research by Norbert Keimling has demonstrated that the same relation between CAPE and future equity returns exists in every equity market so far examined. Import versus recognition: literal transfer requires the same mechanism; shape alone is analogy.

Its portable skeleton is Measurement. Its character: a recurring specialist identity whose thin organization can be abstracted, while its operational meaning remains domain-bound.

Structural Core vs. Domain Accent¶

What is skeletal. The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market. The reviewed portable genus is Ratio; the candidate preserves that parent relation across admissible variants. The source-grounded carrier and relation are expressed by these conditions: Shiller later popularized the 10-year version of Graham and Dodd's P/E as a way to value the stock market as measured by the S&P 500. Thus, a common debate is whether the inverse CAPE ratio should be further divided by the yield on 10 year Treasuries, a common measure of risk-minimised return. The recognition and variation tests add: Research by Norbert Keimling has demonstrated that the same relation between CAPE and future equity returns exists in every equity market so far examined. Research by others has also found CAPE ratios are reliable in estimating market returns over five to ten year periods in many international stock markets.

What is domain-bound. cross-domain formal modeling fixes the carrier, technical vocabulary, admissible evidence, and exceptions that distinguish Cyclically adjusted price-to-earnings ratio from other Ratio instances. Its documented habitat includes the condition that From the 1940s, Sir John Templeton used a method adapted from Graham and Dodd, and somewhat similar to the later Shiller P/E, but with the Dow Jones Industrial Index. A second source-grounded application condition is that Reinvesting earnings in the business is done in the expectation of growing future earnings, and this earnings growth should ideally be accounted for when smoothing earnings over the previous ten years for the purpose of predicting long-term future earnings. Those details determine what the words denote, what observations warrant classification, and which apparent similarities are false positives.

Why the node remains domain-specific. Removing the cross-domain formal modeling differentia leaves the parent rather than the candidate. The edge records that reduction without claiming that every topical neighbor is hierarchical. The final collapse test is source-specific: It is defined as price divided by the average of ten years of earnings (moving average), adjusted for inflation. If that condition or the defining relation is absent, the case may instantiate Ratio, but it is not Cyclically adjusted price-to-earnings ratio.

This entry is a kind of Ratio.

Immediate parent — Ratio (subsumption). Cyclically adjusted price-to-earnings ratio is a domain-specific kind of Ratio. Cyclically adjusted price-to-earnings ratio is a strict kind of Ratio: The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market. The parent supplies the necessary broader identity—Compare one quantity with a nonzero reference quantity by division, so the quotient states how much numerator obtains per unit of denominator and stays interpretable only while both quantities, their units, and their scope are named.—while the candidate adds its domain carrier, relation, and rejection conditions.
Other nearby abstractions. Retrieval neighbors remain comparison surfaces only; no additional parent is asserted without a necessary-genus or structural-prerequisite test.

Relationships to Other Abstractions¶

Current abstraction Cyclically adjusted price-to-earnings ratio Domain-specific

Parents (1) — more general patterns this builds on

Cyclically adjusted price-to-earnings ratio is a kind of Ratio Prime

Cyclically adjusted price-to-earnings ratio is a strict kind of Ratio: The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market.

Hierarchy path (1) — routes to 1 parentless root

Cyclically adjusted price-to-earnings ratio → Ratio → Comparison → Self Checking

Neighborhood in Abstraction Space¶

Cyclically adjusted price-to-earnings ratio sits in a moderately populated region (59^th percentile for distinctiveness): it has near-neighbors but no dense thicket of look-alikes.

Family — Financial Ratios & Instruments (20 abstractions)

Nearest neighbors

Computed from structural-signature embeddings · 2026-10-08

Not to Be Confused With¶

Measurement. The parent omits the specialist differentia. Tell: Can the case establish The cyclically adjusted price-to-earnings ratio (CAPE, Shiller P/E, or P/E 10 ratio) is a stock valuation measure usually applied to the US S&P 500 equity market?
P/B ratio. The price-to-book ratio compares a company's market capitalization or share price with its accounting book value. Tell: Which entry's carrier, operation, and failure condition are satisfied?
Put/Call Ratio. Put/Call Ratio is a recurring identity in formal models and representations, social sciences, humanities, and arts defined by: In finance the put/call ratio (or put-call ratio, PCR) is a technical indicator demonstrating investor sentiment. Tell: Which entry's carrier, operation, and failure condition are satisfied?
Buffett indicator. A market-valuation ratio comparing aggregate listed-equity capitalization with a jurisdiction’s gross domestic product. Tell: Which entry's carrier, operation, and failure condition are satisfied?
A measurement, proxy, or consequence. Those may provide evidence without being the identity. Tell: Would Cyclically adjusted price-to-earnings ratio remain present if the detector or downstream effect changed?
A metaphorical analogue. A similar shape outside cross-domain formal modeling lacks the specialist mechanism. Tell: Do the native roles transfer literally, or only the parent Measurement?

References¶

Frozen Wikipedia discovery revision: https://en.wikipedia.org/wiki/Cyclically_adjusted_price-to-earnings_ratio (revision 1359335718).
Preserved source candidate: https://www.telegraph.co.uk/finance/personalfinance/investing/isas/10931281/New-Isas-are-here-but-is-it-the-worst-time-to-buy-as-FTSE-100-nears-record-high.html
Preserved source candidate: http://www.vectorgrader.com/indicators/cyclically-adjusted-price-earnings
Preserved source candidate: https://web.archive.org/web/20140713005433/http://www.vectorgrader.com/indicators/cyclically-adjusted-price-earnings
Preserved source candidate: https://www.nytimes.com/2014/08/17/upshot/the-mystery-of-lofty-elevations.html?module=Search&mabReward=relbias%3Ar%2C%7B%222%22%3A%22RI%3A16%22%7D&abt=0002&abg=0
Preserved source candidate: http://scholar.harvard.edu/files/campbell/files/campbellshiller_jf1988.pdf
Preserved source candidate: http://www.investopedia.com/terms/p/pe10ratio.asp
Preserved source candidate: http://www.mebanefaber.com/2012/08/23/global-value-building-trading-models-with-the-10-year-cape/
Preserved source candidate: https://web.archive.org/web/20130729040309/http://www.mebanefaber.com/2012/08/23/global-value-building-trading-models-with-the-10-year-cape/

The frozen Wikipedia revision is discovery provenance. The retained source set was reviewed for identity, formal or operational relation, and scope. The encyclopedia's structural synthesis is bounded to those claims; a thin authority surface is recorded as a nonblocking source-strengthening repair rather than concealed.