Last Thursday I met The Yale University Sterling Professor Economics Robert Shiller at the 12th Annual Global ETF Awards dinner (Shiller is recipient of the 2013 Nobel Prize in Economics). I told him how I used his data in my research paper. I ranked his historical month end CAPE (or Cyclically Adjusted Price Earnings) into five categories that ranged from least expensive to most expensive and then looked at what the subsequent 10-year returns turned out to be for each category.
Not surprisingly, the returns were best when valuations were most attractive (lowest CAPE) and risk too was less as measured by average and maximum drawdown. The performance figures were somewhat similar to our median P/E calculations.