Morningstar's John Rekenthaler
addresses two debates, one over stock prices and the other over his analysis of the relationship between a country's corruption levels and its stock market performance.
Rekenthaler covered the Financial Times
story on the debate between Robert Shiller
and Jeremy Siegel
. Shiller's Cape ratio shows the stock market is expensive by 100-year standards but Siegel says that the first 85 years of the data are noncomparable, arguing that they are reasonably priced by the past 15 years' standards.
Rekenthaler says he believes the Siegel side of the debate, citing two reasons Financial Times
sources gave for not implementing the Cape ratio's "bearish" signal: The signal may not be bearish and may not give useful practical information.
On Rekenthaler's hypothesis on a country's corruption and its stock performance, he conceded that critics may be correct in saying his chart was flawed. Rekenthaler looked at 20-year performance and included only 21 countries, 20 of which scored low for corruption, with Italy being the exception. Therefore, the choice of countries with lower corruption only showed that lower corruption among low corruption countries paid off in stock market performance, not among all countries across the globe, Rekenthaler writes.
Rekenthaler expanded from 21 to 44 countries, adding emerging market countries with below to average corruption scores, such as Peru, India, China and Mexico and used 20-year trailing Gross Returns. Though Rekenthaler says the pattern is weaker, it is still there, with lower corruption countries performing better. Columbia, Peru and Brazil didn't fit the pattern, Rekenthaler writes.
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