TY  - JOUR
AU  - Philippon,Thomas
TI  - The Bond Market's q
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12462
PY  - 2006
Y2  - August 2006
UR  - http://www.nber.org/papers/w12462
L1  - http://www.nber.org/papers/w12462.pdf
N1  - Author contact info:
Thomas Philippon
New York University
Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY  10012-1126
Tel: 212/998-0490
Fax: 212/995-4233
E-Mail: tphilipp@stern.nyu.edu
AB  - 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.
ER  -