I ask because technology stocks now comprise over 16% of the S&P500 and they consistently trade at a significant premium to companies in the “old economy.” This fact seems to speak directly to your comment:

“given that the current 10-year normalized PE of 14.9 falls in the middle of this range, the exceptional volatility being experienced at the moment is consistent with historical patterns.”

I wonder if using historical patterns is an apples to apples comparison.

Speaking of current volativity, I’d guess that the range of returns from the middle percentiles of PE in the article has a small relation to market volatility. I think it’s more a function of the fact that PE cycles from the low to the high and back again, so half of the time it’s in the middle it’s moving up, and half of the time it’s moving down.

Very nice analysis and great presentation charts. I read Robt Shiller’s books during an August vacation and did enough statistical analysis on his website data to convince myself to begin selling stocks and buying ultrashorts, beginning Sept 12th. So I’ve actually made money in this downturn. I got so tired of some of the “expert commentary during Oct that I published some of my data (see http://seekingalpha.com/article/101934-how-low-are-pe-ratios-a-comment-on-mark-hulberts-take). For the most part, I’m sitting on the stock sideline looking for reasonable yield muni and corp bonds until such time as PE10’s get into a lower range.

Other factors, publicized by Pimco yesterday, are likely to push returns to the lower part of your distribution. These include: 1) we’re likely to see a secular adjustment downward on future earnings due to higher interest rates, government medling, less leverage, etc and 2) the 10 year average that Shiller likes to use may not be a long enough period of time to actually “capture a business cycle”.