Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71519
Authors: 
Bond, Stephen
Cummins, Jason
Year of Publication: 
2001
Series/Report no.: 
IFS Working Papers, Institute for Fiscal Studies (IFS) 01/22
Abstract: 
We consider to what extent the empirical failings of the Q model of investment can be attributed to the use of share prices to measure average q. We show that the usual empirical formulation may fail to identify the Q model when stock market valuations deviate from the present value of expected net distributions in ways that are consistent with weak and semi-strong forms of the Efficient Markets Hypothesis. We show that the structural parameters of the Q model can stil be identified in this case using a direct estimate of the firm's fundamental value, and implement this using data on securities analysts' earnings forecasts for a large sample of publicly traded US firms. Our empirical results suggest that stock market valuations deviate significantly from fundamental values. Controlling for this, we find no evidence that the Q model of investment is seriously misspecified.
Subjects: 
Investment
Tobin`s Q
JEL: 
D92
E22
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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