Advanced Search
MyIDEAS: Login

The Dynamics of Tobin’s Q

Contents:

Author Info

Abstract

I propose a general-equilibrium model with investment heterogeneity to investigate the dynamics of Tobin's q over time, and more precisely why firms tend to migrate from value to growth and viceversa. Firms are assumed to have two types of investment opportunities: i) reinvest capital in the own industry's production process and ii) trade capital with other industries. In equilibrium the sequence of both types of investment decisions determines the level of capital accumulated in the different industries of the economy, and in turn affects the market-to-book ratios of the firms. I show that firm migration can be generated endogenously as a discount effect, thus driven by consumption, and not necessarily as a cash flow effect. Using data on asset returns, I find that my model (1) captures convergence of price-to-book ratios - negative for growth stocks and positive for value stocks - (firm migration), (2) predicts a negative relationship between market-to-book ratios and risk premia and (3) generates a non-monotone relationship between Tobin's q and conditional volatility consistent with the empirical evidence.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.csef.it/WP/wp286.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 286.

as in new window
Length:
Date of creation: 31 May 2011
Date of revision: 14 Mar 2012
Handle: RePEc:sef:csefwp:286

Note: A previous version of the paper was titled "Firm Migration and Stock Returns".
Contact details of provider:
Postal: I-80126 Napoli
Phone: +39 081 - 675372
Fax: +39 081 - 675372
Email:
Web page: http://www.csef.it/
More information through EDIRC

Related research

Keywords: General equilibrium; Firm migration; Cross-section of returns; Book-to-market;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:286. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lia Ambrosio).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.