There is a nice article over at the Philosophical Economics blog from last month on the dangers of using the Shiller CAPE when the constituents of the underlying indices are constantly evolving. I particularly like the Ship of Theseus thesis being updated by the case of the 1970s group the Little River Band! As always with the Philosophical Economics blog, the post is well worth a read and provides some interesting food for thought in the on-going CAPE debate. I also largely agree with the author’s analysis on Europe and the assertion that monetary union “is going to have to eventually dissolve, or at least undergo a substantial makeover”.
In the post, the author references an April 2013 report from KPMG’s Global Valuation Institute on why more European firms traded below their book value following the financial crisis than US firms. One exhibit, produced below, shows that European firms in the STOXX600 recorded less impairments than S&P500 firms through the crisis. This highlights the sources of the impairments and the differing accounting standards at play.
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Another exhibit from the report illustrates the different sectors that make up the STOXX600 and S&P500 and the percentage of each sector that traded below book value in early 2013. It would be really interesting to see an update of this exhibit.
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This blog represents my personal views and is not reflective of the views or opinions held by any company or employer I work for currently or have worked for in the past. The views expressed herein are based solely upon publicly available data. No views expressed herein should be taken as an endorsement to take any particular course of action in the markets. The basis of this blog is that different views should be expressed and readers make up their own minds on the what they believe and act accordingly.
deconstructingrisk 