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

2013; Elsevier BV; Volume: 24; Linguagem: Inglês

10.1016/j.jempfin.2013.10.003

1879-1727

Marco Gallegati, James B. Ramsey,

Monetary Policy and Economic Impact

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.