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Description

Schiller’s Cyclically Adjusted Price/Earnings Ratio (CAPE) has been used by financial economists to determine the direction of the stock market, up or down. In this study, we develop portfolio weighting models with CAPE as the weighting factor. We use two weighting decision rules: 1.) Higher weights are given to stocks with higher CAPE ratios and, 2.) Higher weights are given to stocks with lower CAPE ratios. The top ten stocks within the Consumer Discretionary, Consumer Staples, Industrials, Healthcare, and Information Technology sectors are used to test the alpha generating capability of the CAPE weighting factor. The returns for CAPE weighted portfolios are calculated for the years 2010-2016. The benchmark portfolio is the S&P 500 ETF SPY.

Publication Date

4-18-2018

Project Designation

Independent Research

Primary Advisor

Tony S Caporale, Robert D Dean

Primary Advisor's Department

Economics and Finance

Keywords

Stander Symposium poster

Comments

Presenter: Nicholas Christopher Jacobs, Dan Edward Wollenberg

Smart Beta Modelling : The Case for Cyclically Adjusted Price/Earnings Ratios

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