Tobin’s Q Versus Cape versus Caper: Predicting Stock Market Returns Using Fundamentals and Momentum

27 Pages Posted: 24 Jan 2012  

Edward Tower

Duke University - Department of Economics; Chulalongkorn University-Economics Department

Multiple version iconThere are 2 versions of this paper

Date Written: December 3, 2011

Abstract

This paper predicts the stock market using Tobin’s q, momentum, the Campbell-Shiller CAPE, and a new variant of the CAPE, the CAPER — trend earnings calculated using regressions of log earnings on time. The CAPER is superior to the CAPE. But q emerges as by far the best of the predictors. Two versions of the model are built. The one with momentum predicts a 29% fall in real wealth over the eight years from end 2010. The one without momentum predicts real wealth to increase over all time horizons, but even after fifteen years, only a 32% increase in real wealth.

Keywords: CAPE, CAPER, Tobin’s q, momentum, stock market

Suggested Citation

Tower, Edward, Tobin’s Q Versus Cape versus Caper: Predicting Stock Market Returns Using Fundamentals and Momentum (December 3, 2011). Economic Research Initiatives at Duke (ERID) Working Paper. Available at SSRN: https://ssrn.com/abstract=1990449 or http://dx.doi.org/10.2139/ssrn.1990449

Edward Tower (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1818 (Phone)
919-684-8974 (Fax)

Chulalongkorn University-Economics Department

Bangkok
Thailand

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