TY - JOUR T1 - Es-cape-ing from Overvalued Sectors: <em>Sector</em> <br/> <em>Selection Based on the Cyclically Adjusted</em> <br/> <em>Price-Earnings (CAPE) Ratio</em> JF - The Journal of Portfolio Management SP - 16 LP - 33 DO - 10.3905/jpm.2014.41.1.016 VL - 41 IS - 1 AU - Oliver Bunn AU - Arne Staal AU - Ji Zhuang AU - Anthony Lazanas AU - Cenk Ural AU - Robert Shiller Y1 - 2014/10/31 UR - https://pm-research.com/content/41/1/16.abstract N2 - This article explores the effectiveness of the cyclically adjusted price-earnings (CAPE) ratio to detect over- or undervaluation of sectors within the U.S. economy. The authors modify the original notion of the ratio from several empirical studies by John Campbell and Robert Shiller, not only to ensure uniform corporate payout policies, but also to allow comparisons across the sectors’ potentially differing accounting standards and varying growth expectations. Considering sector-level CAPE information back to the early 1980s, the authors translate the CAPE-based valuation signals into a sector rotation strategy, whose long-term value nature is complemented by a supplemental momentum adjustment, in order to eliminate value traps. The performance enhancement associated with the CAPE-based sector rotation extends to European sectors as an out-of-sample test.TOPICS: Accounting and ratio analysis, in markets, portfolio construction ER -