Bond vs stock market's Q: Testing for stability across frequencies and over time

• We examine bond market's Q, stock market's Q and aggregate investment.
• Variations over time and across frequencies of the Q-relationship are examined.
• Bond market's Q effects are constant across frequencies and over time.
• Stock market's Q effects are both time and frequency dependent.
• Tobin's Q is an important determinant of aggregate investment in the long-run.

In this paper we revisit the evidence recently provided by Philippon (2009) about the relationship among bond market's Q, stock market's Q and aggregate investments for the US. Specifically, we analyze the stability of the relationship between aggregate investment and the two measures of Q across frequencies and over time. We find that the relationship between aggregate investment and stock market's Q, in contrast to that with bond market's Q, is both frequency-dependent and time-varying. Both the successfulness of bond market's Q and the poor performance of the usual Tobin's Q can be explained by taking into account stability across frequencies of the first and instability over time of the latter.