"Rational Pessimism: Predicting Equity Returns by Tobin's q and Price/Earnings Ratios"
Publication
, Journal Article
Harney, M; Tower, E
Published in: The Journal of Investing
October 2003
In the spring of 2000, two books predicted a substantial fall in the S&P500 Index. Robert Shiller’s Irrational Exuberance found that, historically, a high price earnings ratio, with real earnings averaged over 10 years, accurately predicts a low real rate of return from investing in the S&P500 Index. Smithers and Wright’s Valuing Wall Street found that a high Tobin’s q for the non- financial equities in the S&P500 does the same. We discover that q beats all variants of the PE ratio for predicting real rates of return over alternative horizons. We also formalize the feedback mechanisms considered in both books.
Duke Scholars
Published In
The Journal of Investing
Publication Date
October 2003
Volume
12
Issue
2
Start / End Page
58 / 69
Citation
APA
Chicago
ICMJE
MLA
NLM
Harney, M., & Tower, E. (2003). "Rational Pessimism: Predicting Equity Returns by Tobin's q and Price/Earnings Ratios". The Journal of Investing, 12(2), 58–69.
Harney, Matthew, and Edward Tower. “"Rational Pessimism: Predicting Equity Returns by Tobin's q and Price/Earnings Ratios".” The Journal of Investing 12, no. 2 (October 2003): 58–69.
Harney M, Tower E. "Rational Pessimism: Predicting Equity Returns by Tobin's q and Price/Earnings Ratios". The Journal of Investing. 2003 Oct;12(2):58–69.
Harney, Matthew, and Edward Tower. “"Rational Pessimism: Predicting Equity Returns by Tobin's q and Price/Earnings Ratios".” The Journal of Investing, vol. 12, no. 2, Oct. 2003, pp. 58–69.
Harney M, Tower E. "Rational Pessimism: Predicting Equity Returns by Tobin's q and Price/Earnings Ratios". The Journal of Investing. 2003 Oct;12(2):58–69.
Published In
The Journal of Investing
Publication Date
October 2003
Volume
12
Issue
2
Start / End Page
58 / 69