%0 Journal Article %A Robert Arnott %A Tzee-man Chow %T Practical Applications of King of the Mountain: The Schiller P/E and Macroeconomic Conditions %D 2018 %R 10.3905/pa.6.2.289 %J Practical Applications %P 1-5 %V 6 %N 2 %X Although the cyclically adjusted price/earnings ratio (CAPE), also known as the Schiller P/E, appears to be a powerful tool for forecasting equity returns over very long periods, it has been of limited practical use for shorter horizons. King of the Mountain: The Schiller P/E and Macroeconomic Conditions, published in the Fall 2017 issue of The Journal of Portfolio Management, provides a new approach with stronger short-term results. Authors Rob Arnott, Tzee-man Chow (both of Research Affiliates), and Denis Chaves (formerly of AQR) first show that stock valuations tend to be higher during periods when interest rates and inflation are moderate—not too high and not too low. They then demonstrate that comparing current P/E with “conditional normal” P/E ratios that have been adjusted for macroeconomic conditions may help investors predict equity market returns over periods of less than three years.TOPICS: Accounting and ratio analysis, developed %U https://pa.pm-research.com/content/iijpracapp/6/2/1.7.full.pdf