Thursday, October 01, 2009

Tobin's q and The S&P 500 Scatter Chart

I had a reader (H/T br) send me a scatter chart of Tobin's q and the S&P 500 Index. The data period is 1950-1999. I added a line estimating where the second quarter ratio would fall at .78.
tobins q & S&P 500

Another chart sent by the reader contains a scatter chart of the S&P 500 Index's future 10-year annualized return versus the inflation adjusted 10-year average P/E ratio. This data was obtained from Robert Shiller's data base (.xls file).
S&P 500 Return and PE Scatter Chart


mark said...

It appears that Tobin's Q is a better fit than p/e when running a regression model with future returns as the dependent variable.

Is that fair to say? I'm only judging by the look of the graphs.

Regardless, I think using Tobin's Q (or any data that is autocorrelated) to forecast future returns using a regression model is problematic.

yessir said...

thanks a ton for sharing this stuff

more scatter plots please!!!