The S&P500 trailing 12-month P/E is above its historical 95% percentile. Do elevated valuations coincide with elevated crash risk? Yes! Using Mishkin and White's (2002) definition of a "crash" as a 20% decline in the next month, quarter or year, crashes have occurred about 7% of the times that P/E has been this elevated over the past 100 years. Elevated P/E has predictive power for crash risk. Does that mean an investor should get out of the market when P/E is this elevated? Not necessarily! Even with the more frequent severe drawdowns, the equity premium has been so large that an investor who stayed in the market regardless of P/E earned higher returns than an investor who exited when P/E was this high. The false positives (high P/E but no crash) were frequent enough to outweigh the losses during a crash. Those high returns come with more volatility, however, so the decision to stay in the market depends on the risk aversion of the investor.