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The Bond Market's q

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  • Thomas Philippon

Abstract

I propose an implementation of the q-theory of investment using bond prices instead of equity prices. Credit risk makes corporate bond prices sensitive to future asset values, and q can be inferred from bond prices. With aggregate U.S. data, the bond market's q fits the investment equation six times better than the usual measure of q, it drives out cash flows, and it reduces the implied adjustment costs by more than an order of magnitude. Theoretical interpretations for these results are discussed.

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  • Thomas Philippon, 2009. "The Bond Market's q," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1011-1056.
    • Handle: RePEc:oup:qjecon:v:124:y:2009:i:3:p:1011-1056.
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    File URL: http://hdl.handle.net/10.1162/qjec.2009.124.3.1011
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    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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