Why Did The Q Theory Of Investment Start Working?

Why Did the q Theory of Investment BEGIN WORKING? We show that the relationship between aggregate investment and Tobin’s q is becoming extremely tight in recent years, contrasting with earlier times. We connect this change with the growing empirical dispersion in Tobin’s q, which we document both in the cross-section and the time-series. To review the source of this dispersion, we augment a typical investment model with two specific mechanisms related to firms’ research activities: innovations and learning. Both advancement jumps in cash moves and the frequent updating of beliefs about future cash flows endogenously amplify volatility in the firm’s value function. Perhaps counterintuitively, the investment-q regression works better for research-intensive sectors, a growing section of the overall economy, despite their greater stock of intangible property. We confirm the model’s predictions in the info, and we disentangle the results from dimension error in q.

If that is Yellen, “perhaps that will be the platform for her to gain even more reputation nationally,” Stith said. One thing investors and traders may not have to worry about is a debt ceiling crisis in Washington. The government will most likely not breach its congressionally authorized borrowing limit until at least Labor Day. The perfect bookend to summer time, in other words.

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