Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/212370
Authors: 
Kilponen, Juha
Verona, Fabio
Year of Publication: 
2016
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 32/2016
Abstract: 
We revisit the empirical performance of the Q theory of investment, explicitly taking into account the frequency dependence of investment, Tobin's Q, and cash flow. The time series are decomposed into orthogonal components of different frequencies using wavelet multiresolution analysis. We find that the Q theory fits the data much better than might be expected (both in-sample and out-of-sample) when the frequency relationship between the variables is taken into account. Merging the wavelet approach and proxies for Q recently suggested in the investment literature also significantly improves the quality of short-term forecasts.
JEL: 
C49
E22
G31
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-141-2
Document Type: 
Working Paper

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