CAPE has long been a cornerstone of long-horizon return forecasting. High valuations imply lower future returns. Low valuations imply higher future returns. Critics argue that its predictive power has faded in recent decades. This paper pushes back. It shows that the apparent decline is largely a measurement problem. When CAPE is constructed using aligned index constituents and market-cap weights, its out-of-sample predictive power exceeds 50 percent for ten-year returns. The result is a more pr...
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