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The Stock Market and Investment: Another Look at the Micro-foundations of q Theory

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  • Palley, Thomas I

Abstract

This paper introduces a novel distinction between real q and financial q. The paper examines three versions of financial q developed by Brainard and Tobin, Minsky and Hayashi, respectively. These theories differ regarding the nature of stock market price determination and their use of marginal productivity theory. It is shown that non-profit maximising behaviour by managers does not invalidate q theory. It is also shown that if managers and shareholders have different profit expectations, this leads to an equilibrium value of q that differs from unity. Lastly, the implicit claims in q theory regarding the efficient role of stock markets as regulators of capital accumulation are shown to depend on assumptions about stockholder behaviour. Copyright 2001 by Oxford University Press.

Suggested Citation

  • Palley, Thomas I, 2001. "The Stock Market and Investment: Another Look at the Micro-foundations of q Theory," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 25(5), pages 657-667, September.
    • Handle: RePEc:oup:cambje:v:25:y:2001:i:5:p:657-67
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    Cited by:

    1. Thomas I. Palley, 2013. "Financialization: What It Is and Why It Matters," Palgrave Macmillan Books, in: Financialization, chapter 2, pages 17-40, Palgrave Macmillan.
    2. Greg Hannsgen, 2007. "The Transmission Mechanism of Monetary Policy: A Critical Review," Chapters, in: Philip Arestis & Malcolm Sawyer (ed.), A Handbook of Alternative Monetary Economics, chapter 13, Edward Elgar Publishing.
    3. Faria, Joao Ricardo & Mollick, Andre Varella, 2010. "Tobin's q and U.S. inflation," Journal of Economics and Business, Elsevier, vol. 62(5), pages 401-418, September.
    4. Javier López Bernardo & Engelbert Stockhammer & Félix López Martínez, 2016. "A post Keynesian theory for Tobin’s in a stock-flow consistent framework," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 39(2), pages 256-285, April.
    5. Faria, João Ricardo & Mollick, André Varella & Sachsida, Adolfo & Wang, Le, 2012. "Do central banks affect Tobin's q?," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 1-10.
    6. Thomas I. Palley, 2013. "Enriching the Neo-Kaleckian Growth Model: Nonlinearities, Political Economy, and Financial Factors," Working Papers wp335, Political Economy Research Institute, University of Massachusetts at Amherst.
    7. Amit Bhaduri & Srinivas Raghavendra & Vishwesha Guttal, 2015. "On the Systemic Fragility of Finance-Led Growth," Metroeconomica, Wiley Blackwell, vol. 66(1), pages 158-186, February.
    8. Thomas I. Palley, 2013. "Cambridge and neo-Kaleckian growth and distribution theory: comparison with an application to fiscal policy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(1), pages 79-104, January.

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