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

Article history: Received 16 September 2012 Received in revised form 4 September 2013 Accepted 17 October 2013 Available online 23 October 2013 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. © 2013 Elsevier B.V. All rights reserved. JEL classification: C14 C29 C52 E22 E44