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

Edward Tower ()

No 12-02, Working Papers from Duke University, Department of Economics

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 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for and nep-mac
Date: 2012
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Persistent link: http://EconPapers.repec.org/RePEc:duk:dukeec:12-02

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