PT - JOURNAL ARTICLE AU - Matthew Harney AU - Edward Tower TI - Predicting Equity Returns Using Tobin'S <em>q</em> and Price-Earnings Ratios AID - 10.3905/joi.2003.319555 DP - 2003 Aug 31 TA - The Journal of Investing PG - 58--70 VI - 12 IP - 3 4099 - https://pm-research.com/content/12/3/58.short 4100 - https://pm-research.com/content/12/3/58.full AB - 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.