Returns to equity, investment and Q
Subtitle: evidence from the United Kingdom
By: Simon Price and Christoph Schleicher
Contributors: Schleicher, Christoph; Bank of England
Series: Working paper -- no. 310; Working paper (Bank of England : Online) -- no. 310.
Publisher: Bank of England
Published: 2006
Place of publication: London
Language: eng
Format: [electronic resource] :
Description: "Conventional wisdom has it that Tobin's Q cannot help explain aggregate investment. This is puzzling, as recent evidence suggests the closely related user cost approach can do so. We do not attempt to explain this puzzle. Instead, we take an entirely different approach, not using the first-order conditions from the firm's maximisation problem but instead exploiting the present-value expression for the firm's value. The standard linearised present-value asset price decomposition suggests that Q should be able to predict other variables, such as stock returns. Using UK data we find that it has strong long-horizon predictive power for debt accumulation, stock returns and UK business investment. The correctly signed results on both returns and investment appear to be robust, and are supported by the commonly used and bootstrapped standard error corrections, as well as recently developed asymptotic corrections."--Bank of England web site.
Notes: Title from PDF file as viewed on Oct. 16, 2006

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