Feb 10, 2010
Q&A
In their book Valuing Wall Street published in early 2000, Andrew Smithers and Stephen Wright claim that the q ratio popularized by Nobel laureate James Tobin reliably identifies periods of extreme overvaluation and undervaluation in stock prices. Can investors use this indicator to implement a successful market timing strategy?

EFF/KRF: This proposition has been tested in several papers, and the answer is no. The market-to-book ratio for the market (a proxy for q) shows some ability to predict stock returns during the 1930s, but not thereafter.

 
ABOUT FAMA AND FRENCH
Eugene F. Fama
The Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business
Kenneth R. French
The Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College
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Eugene Fama and Ken French are members of the Board of Directors for and provide consulting services to Dimensional Fund Advisors LP.