The Bond Market's q

Thomas Philippon ()

No 12462, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: I propose an implementation of the q-theory of investment using bond prices instead of equity prices. Credit risk makes corporate bond prices sensitive to future asset values, and q can be inferred from bond prices. The bond market's q performs much better than the usual measure in standard investment equations. With aggregate data, the fit is three times better, cash flows are driven out and the implied adjustment costs are reduced by more than an order of magnitude. The new measure also improves firm level investment equations.

JEL-codes: E0 E44 G31 (search for similar items in EconPapers)
Date: 2006-08
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-mac
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Philippon, Thomas. "The bond market’s Q," Quarterly Journal of Economics, August 2009.

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Journal Article: The Bond Market's q (2009)
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