In today’s Edsource, we talk about the CAPE ratio and whether it is a reliable metric for predicting stock market crashes. The Story Let’s talk about stock market crashes. Even if you haven’t lived through one, you must have definitely heard or read about the big ones: the dot-com bubble in 2000 or the global financial crisis of 2008. Those events rocked the global economy, wiping out wealth and destabilising markets for years. But behind these crashes lies something that’s often mentioned in the financial world: the Cyclically Adjusted Price-to-Earnings (CAPE) ratio, also known as Shiller’s P/E. You see, back in 2000, right before the tech bubble burst, the CAPE ratio for the U.S. stock market hit a record high. It peaked again in 2007, right before the global financial crisis struck. So, why are we talking about it today? Because the CAPE ratio for Indian equities is today sitting at a hefty 43 times. 1 And that’s dangerously close to where it was before the 2008 crash. Add to t...