The forward looking information content of equity and bond markets for aggregate investments

• We examine the different information content of Tobin's Q and corporate bond spread for aggregate investments.
• Wavelet-based exploratory analysis and time scale regression analysis are performed.
• Bond and stock markets provide complementary rather than alternative information content.
• Progressive shift in the relative importance between stock and bond market prices across time scales.
• Tobin's Q contribution is predominant at higher scales, the relative price of corporate bonds at lower scales.

The literature on aggregate investment has recently shifted attention away from the stock market in favor of the bond market as a consequence of the disappointing empirical results of stock market's Q and the ability of credit spreads to forecast investment and output growth. In this paper we examine the different information content of Tobin's Q and corporate bond spread for aggregate investments in the US by means of wavelet analysis. The evidence shows that equity and bond markets’ information contents are complementary each other rather than alternative. In particular, a progressive shift in the respective contributions of stock market's Q and the relative price of corporate bonds for aggregate investments emerges when moving from higher to lower scales, the contribution of stock market's Q being predominant at higher scales, whereas that of the relative price of corporate bonds has a tendency to increase as the time scale decreases.