Equity price ratios that do not directly take into account interest rates provide a better explanation for historical stock prices, says research conducted by Sveriges Riksbank.

The cyclically-adjusted price-to-earnings (Cape) ratio, a valuation measure that uses real earnings per share over a 10-year period, is a good guide to the evolution of prices, the paper finds. But the excess Cape yield, a measure of the relative return of equities over bonds that directly takes into account the level