TY - JOUR T1 - Predicting Equity Returns Using Tobin'S <em>q</em> and Price-Earnings Ratios JF - The Journal of Investing SP - 58 LP - 70 DO - 10.3905/joi.2003.319555 VL - 12 IS - 3 AU - Matthew Harney AU - Edward Tower Y1 - 2003/08/31 UR - https://pm-research.com/content/12/3/58.abstract N2 - In the spring of 2000, two books predicted a substantial fall in the S&amp;P 500 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&amp;P 500 Index. Smithers and Wright's Valuing Wall Street found that a high Tobin's q for the non-financial equities in the S&amp;P 500 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. ER -