Before revision: The aim of this paper is twofold: to provide a theoretical framework and to give further empirical support to Shiller's test of the appropriateness of prices in the stock market based on the Cyclically Adjusted Price Earnings (CAPE) ratio. We devote the first part of the paper to the empirical analysis and we show that the CAPE is a powerful predictor of future long run performances of the market not only for the U. S. but also for countries such as Belgium, France, Germany, Japan, the Netherlands, Norway, Sweden and Switzerland.
After revision: The aim of this paper is twofold: to provide a theoretical framework and to give further empirical support to Shiller's test of the appropriateness of prices in the stock market based on the Cyclically Adjusted Price Earnings (CAPE) valuation ratio devised by Robert Shiller to predict long-horizon performances of the market not only for the U. S. but also for countries such as Belgium, France, Germany, Japan, the Netherlands, Norway, Sweden and Switzerland.