Returns to Equity, Investment and Q: Evidence from the UK

26 Pages Posted: 28 Aug 2005

See all articles by Simon Price

Simon Price

City University London - Department of Economics; Essex Business School

Christoph Schleicher

Bank of England

Abstract

Conventional wisdom has it that Tobin's Q cannot help explain aggregate investment. However, the standard linearized present-value asset price decomposition suggests that it should be able to predict other variables, such as stock returns. Using a new data set for the UK, we find that Q has strong predictive power for debt accumulation, stock returns and UK business investment. The correctly signed results on both returns and investment appear to be robust, and are supported by the commonly used and bootstrapped standard error corrections, as well as recently developed asymptotic corrections.

Suggested Citation

Price, Simon G. and Price, Simon G. and Schleicher, Christoph, Returns to Equity, Investment and Q: Evidence from the UK. Manchester School, Vol. 73, No. S1, pp. 32-57, September 2005, Available at SSRN: https://ssrn.com/abstract=777818

Simon G. Price (Contact Author)

City University London - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Christoph Schleicher

Bank of England ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom
+44 0207 601 4115 (Phone)
+44 0207 601 5953 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
28
Abstract Views
806
PlumX Metrics