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Bond vs stock market's Q: Testing for stability across frequencies and over time

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  • Gallegati, Marco
  • Ramsey, James B.

Abstract

In this paper we revisit the evidence recently provided by Philippon (2009) about the relationship among bond market's Q, stock market's Q and aggregate investments for the US. Specifically, we analyze the stability of the relationship between aggregate investment and the two measures of Q across frequencies and over time. We find that the relationship between aggregate investment and stock market's Q, in contrast to that with bond market's Q, is both frequency-dependent and time-varying. Both the successfulness of bond market's Q and the poor performance of the usual Tobin's Q can be explained by taking into account stability across frequencies of the first and instability over time of the latter.

Suggested Citation

  • Gallegati, Marco & Ramsey, James B., 2013. "Bond vs stock market's Q: Testing for stability across frequencies and over time," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 138-150.
    • Handle: RePEc:eee:empfin:v:24:y:2013:i:c:p:138-150
    DOI: 10.1016/j.jempfin.2013.10.003
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    More about this item

    Keywords

    Wavelet transform; Tobin's Q; Bond market's Q; Time-varying relationship;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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