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Tobin’S Q Versus Cape Versus Caper: Predicting Stock Market Returns Using Fundamentals and Momentum

  • Ed Tower

This paper predicts the stock market using Tobin’s q, momentum, the Campbell-Shiller CAPE, and a new variant of the CAPE, the CAPER—trend earnings calculated using regressions of log earnings on time. The CAPER is superior to the CAPE. But q emerges as by far the best of the predictors. Two versions of the model are built. The one with momentum predicts a 29% fall in real wealth over the eight years from end 2010. The one without momentum predicts real wealth to increase over all time horizons, but even after fifteen years, only a 32% increase in real wealth.

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Paper provided by Duke University, Department of Economics in its series Working Papers with number 12-02.

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Length: 27
Date of creation: 2012
Date of revision:
Handle: RePEc:duk:dukeec:12-02
Contact details of provider: Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
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