Tobin’s Q Versus Cape versus Caper: Predicting Stock Market Returns Using Fundamentals and Momentum
Duke University - Department of Economics; Chulalongkorn University-Economics Department
December 3, 2011
Economic Research Initiatives at Duke (ERID) Working Paper
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.
Number of Pages in PDF File: 27
Keywords: CAPE, CAPER, Tobin’s q, momentum, stock market
Date posted: January 24, 2012