From the Japanese equity strategists at Citigroup Global Markets today:
What is CAPE? — Benjamin Graham, who taught Warren Buffet at Columbia Business School, argued that one should use average profit over a number of years in calculating PER. Based on this, Yale professor Dr. Robert Shiller uses average profits over ten years in calculating the PER for the S&P 500. The ten year average more or less factors out economic impact, so today we refer to the measure as cyclically adjusted PER (or CAPE).
Click on charts, courtesy of Citigroup Global Markets.
Thinking about mean reversion?
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