Yale professor Robert J. Shiller, the author of “Irrational Exuberance,” created one of the most useful and predictive measures of stock-market valuation: the cyclically-adjusted price-earnings ratio (CAPE).

As Professor Shiller explains here, the CAPE mutes the impact of the business cycle by averaging 10 years of earnings. It thus provides a good picture of the market’s value regardless of where we are in the business cycle.

Yahoo, Feb 23, 2009 08:00am EST