The Shiller CAPE ratio and crash risk: how expensive is the market?
The essentials in 30 seconds
- The Shiller CAPE ratio divides a share index by the average of 10 years of inflation-adjusted earnings.
- The 20th-century average was 15.21, and the series peaked at 44.19 in December 1999.
- Robert Shiller states that the ratio was never intended to predict crashes or low-points.
- It sizes how much value rests on expectations, so it describes how far a fall could run as of October 2026.
- Two detailed pages serve decision makers in Singapore, ASEAN, and Hong Kong.
The Shiller PE ratio, also called CAPE, answers one question: how expensive is the stock market compared with its long-run earnings? This guide belongs to the stock market crash signals series. It gives the benchmarks, explains how the ratio links to crash risk without naming a date, and points to two detailed pages as of October 2026: one on the method and one on 1929, 2000, and 2008.
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What is the Shiller PE ratio, and how does it relate to crash risk?
The Shiller PE ratio divides a share index, usually the S&P 500, by the average of 10 years of inflation-adjusted earnings. The 10-year average smooths the swings of the business cycle, which makes the ratio steadier than an ordinary price-to-earnings ratio. A high value means that buyers pay a lot for each unit of long-run earnings.
The link to crash risk is indirect. A high ratio means that a large part of prices rests on expectations, so a loss of confidence can remove more value. A low ratio means that prices rest on earnings already earned. The ratio measures the size of the cushion and leaves the trigger of a fall to other signals.
Who built the Shiller CAPE ratio, and why does it matter?
Economist Robert Shiller invented the ratio, and his 1988 paper with John Campbell concluded that a long moving average of real earnings helps to forecast future real dividends. Shiller shared one-third of the 2013 Nobel Memorial Prize in Economic Sciences for his empirical analysis of asset prices. The ratio carries his name for that reason.
His book Irrational Exuberance, published on 15 March 2000, used CAPE to argue that stock markets were overvalued. The Nasdaq peaked in the same month. The 2005 edition warned that the real estate bubble might soon burst. These dates give the ratio a public track record as a valuation warning, separate from any timing claim.
Which CAPE benchmarks tell you if the stock market is expensive?
The 20th-century average was 15.21. The long series on multpl.com, which draws on Shiller data, lists a mean of 17.44, a median of 16.13, a minimum of 4.78 in December 1920, and a maximum of 44.19 in December 1999. These numbers form a ruler for any current reading, and you can find the latest value on Shiller’s data page.
In 2014 Shiller noted that a CAPE above 25 had been surpassed since 1881 in only 3 earlier periods, clustered around 1929, 1999, and 2007. Each of those 3 periods was followed by a major fall. The benchmark therefore flags the zone where a loss of confidence has the most to remove.
What does the Shiller CAPE ratio say about future stock returns?
CAPE is used mainly to assess likely equity returns over 10 to 20 years. Campbell and Shiller found that the lower the CAPE, the higher the investor’s likely return over the following 20 years. At the 20th-century average of 15.21, the implied return was around 6.6% a year over the next 20 years.
A 2020 article found that in 95% of 10-year periods, actual returns landed within 2.74% of CAPE projections, and in 67% of periods within 1.37%. The page on CAPE ratio explained covers the method step by step, including the choice of earnings, the inflation adjustment, and the typical mistakes in reading it.
Can the CAPE ratio predict a stock market crash?
The ratio was never intended to predict crashes or low-points, and Wikipedia adds that high values have been associated with such events. Prices can stay expensive for years, as the 1990s showed. Using CAPE as a clock produces early alarms, while using it as a ruler gives the size of the exposure.
The page on CAPE before 1929, 2000 and 2008 reviews the three peak periods one by one: the price-to-earnings ratio of 32.6 in September 1929, the series peak of 44.19 in December 1999, and the readings above 25 around 2007. Each period shows a high ratio and a fall that came on its own schedule.
What are the limits of the CAPE ratio for stock market crash risk?
Critics call the original definition too pessimistic. Jeremy Siegel argued that accounting changes of the 1990s understate earnings, which pushes the ratio up. The ratio also ignores prevailing risk-free rates, so a market can look expensive while bonds pay little. Both points call for reading CAPE next to the yield curve.
The ratio relies on backward-looking data, and 10 years of earnings can include one-off shocks. A recession or a boom inside the window moves the average. For these reasons the ratio works best as one line among several, and a rising count of warnings across signals carries more weight than a single high value.
How do you use the Shiller CAPE ratio on a crash dashboard?
Record the current CAPE once a quarter, compare it with the 15.21 average and the 25 benchmark, and note the direction. Add the VIX for stress, the yield curve for growth, and the EQOS Asia φ(S) score for the structure of the system. This page is general information, not investment advice.
The Λ simulator gives a first φ(S) estimate for your own case in minutes, and the EQOS Asia pricing page lists the full diagnostic formats. Teams in Singapore, ASEAN, and Hong Kong use the pairing of valuation and structure to size their exposure in calm periods, when decisions hold up best.
See also in this guide
Frequently asked questions
What is the Shiller PE ratio?
The Shiller PE ratio, also called CAPE, divides a share index by the average of 10 years of inflation-adjusted earnings. Robert Shiller and John Campbell built it, and it is used mainly to assess likely equity returns over 10 to 20 years, with a 20th-century average of 15.21.
Can the Shiller PE ratio predict a stock market crash?
The ratio was never intended to predict crashes or low-points, although high values have been associated with such events. It sizes how much value rests on expectations, and it leaves the trigger and the date open. Reading it with the VIX and the yield curve gives a fuller picture.
What CAPE level is considered high?
In 2014 Shiller noted that a CAPE above 25 had been surpassed since 1881 in only 3 earlier periods, around 1929, 1999, and 2007. The series maximum is 44.19 in December 1999. The 20th-century average is 15.21, which gives the baseline for comparison.
What are the main criticisms of the CAPE ratio?
Critics point to accounting changes since the 1990s that may understate earnings, the absence of risk-free rates in the formula, and the reliance on backward-looking data. These limits call for reading CAPE as one line of a dashboard rather than as a stand-alone verdict as of October 2026.
Test your knowledge
1. How many years of earnings does CAPE average?
- 1 year
- 10 years
- 50 years
Show the answer
10 years.
2. What was the 20th-century average CAPE?
- 15.21
- 25.00
- 44.19
Show the answer
15.21.
3. When did the CAPE series reach its maximum of 44.19?
- December 1920
- December 2007
- December 1999
Show the answer
December 1999.
4. What did Shiller say about CAPE and crashes?
- It was never intended to predict crashes
- It times every crash
- It measures bank leverage
Show the answer
It was never intended to predict crashes.
5. Which mark did Shiller flag in 2014 as rarely surpassed?
- A CAPE above 5
- A CAPE above 25
- A CAPE above 250
Show the answer
A CAPE above 25.
About the author
Stéphane Jambu
President, EQOS Forecast Asia
Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile
Sources: EQOS Asia crash signals guide (eqos-asia.com/stock-market-crash/stock-market-crash-signals.html), EQOS Asia simulator (eqos-asia.com/simulator.html) and pricing page (eqos-asia.com/pricing.html), cyclically adjusted price-to-earnings ratio (en.wikipedia.org/wiki/Cyclically_adjusted_price-to-earnings_ratio), Irrational Exuberance (en.wikipedia.org/wiki/Irrational_Exuberance_(book)), Shiller PE ratio series (multpl.com/shiller-pe), consulted on 22 October 2026. Page updated on 22 October 2026.