NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Cross-sectional Tobin's Q

Frederico Belo, Chen Xue, Lu Zhang

NBER Working Paper No. 16336
Issued in September 2010, Revised in December 2011
NBER Program(s):Asset Pricing, Corporate Finance

The neoclassical investment model matches cross-sectional asset prices both in first differences and in levels. With ten book-to-market deciles as the testing portfolios, the investment model largely matches the Tobin's Q spread and the average return spread across the extreme deciles. The parameter estimates imply low adjustment costs around 1.7% of sales. The model's fit results from three aspects of our econometric strategy: (i) We test the model at the portfolio level to alleviate the impact of measurement errors; (ii) we match the first moment to mitigate the impact of temporal misalignment between asset prices and investment; and (iii) we allow for nonlinear marginal costs of investment. Our evidence suggests that any differences between the intrinsic value of equity and the market value of equity tend to dissipate in the long run.

download in pdf format
   (296 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16336

Users who downloaded this paper also downloaded* these:
Bolton, Chen, and Wang w14845 A Unified Theory of Tobin's q, Corporate Investment, Financing, and Risk Management
Liu and Zhang w16747 A Model of Momentum
Wachter w16255 Asset Allocation
Gulen, Xing, and Zhang w15993 Value versus Growth: Time-Varying Expected Stock Returns
Lang and Stulz w4376 Tobin's Q, Corporate Diversification and Firm Performance
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us