Tobin's Q and Stock Market Performance

11 Pages Posted: 14 Jul 2013 Last revised: 1 Sep 2014

Vichet Sum

University of Maryland Eastern Shore - School of Business and Technology

Date Written: July 14, 2013

Abstract

This study examines if the change in aggregate Tobin’s q ratio (∆TBQ) can dynamically forecast return on the S&P 500 (SP). The VAR results from analyzing quarterly data from 1951Q4 to 2012Q4 show that the response of SP to ∆TBQ shock becomes significantly positive immediately. The Granger-causality test results reveal that ∆TBQ Granger-causes SP; the reverse causality is not evident. The variance decomposition results reveal that ∆TBQ forecasts about 70% of SP at the two-quarter to eight-quarter horizons.

Keywords: Tobin’s q ratio, stock market performance, VAR

JEL Classification: G12, G14, G17

Suggested Citation

Sum, Vichet, Tobin's Q and Stock Market Performance (July 14, 2013). Available at SSRN: https://ssrn.com/abstract=2293527 or http://dx.doi.org/10.2139/ssrn.2293527

Vichet Sum (Contact Author)

University of Maryland Eastern Shore - School of Business and Technology ( email )

2105 Kiah Hall
Princess Anne, MD 21853
United States
410-651-6531 (Phone)
410-651-6529 (Fax)

HOME PAGE: http://www.umes.edu/bma/Sum.html

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