NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Bond Market's q

Thomas Philippon

NBER Working Paper No. 12462
Issued in August 2006
NBER Program(s):   EFG

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.

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This paper was revised on February 8, 2008

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Document Object Identifier (DOI): 10.3386/w12462

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

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