My Finance

I wrote about this manuscript in a previous post. It was returned for review after two years. This is a very long time.

I updated it with new data from 2023 and 2024, corrected some misprints, and returned it to editors and reviewers for further review. I hope it gets published soon.

Luckily, this new data did not change any of my conclusions:

• This new valuation measure takes into account the difference between total returns and fundamentals growth.
• This measure works best if we take trailing averaged earnings: Innovations for the autoregressions are independent identically distributed and Gaussian.
• We picked 5 years as averaging window, but this works well also for 10 years, which corresponds to the classic Shiller cyclically adjusted price-earnings ratio (CAPE).
• The classic Shiller CAPE measure shows that the market is currently overvalued: The current ratio is much higher than the historical average or median.
• But our new valuation measure is about equal to the historical average. Thus it shows that the market is fairly valued.

I plan to write yet another manuscript to include annual volatility, see a previous post.