The Q-Ratio

Updated May 9, 2010

Q is a method of estimating the fair value of the stock market. It's defined as the total price of the market divided by the replacement cost of all its companies.

The concept was originally developed by economist James Tobin. More recently, it's been advocated by Andrew Smithers and Stephen Wright in their prescient book Valuing Wall Street.

This page is an attempt to independently recreate the Q graphs from the raw data.

Q-Ratio Relative to Historical Average

The Method

The data from which q is calculated are published in the "Flow of Funds Accounts of the United States Z1", which is published quarterly by the Federal Reserve. This data source is available from 1952 onwards.
Smithers & Co.
http://www.smithers.co.uk/faqs.php

We're using the Z1 Flow of Funds report from the Federal Reserve, as indicated.

For the total market price, we're using B.102 line 35 (market value of equities outstanding). For the replacement cost, we're using B.102 line 32 (net worth). The results have been compared to the latest numbers from Smithers & Co. and they seem to match.

The data we used for the graphs is available here.

The file is tab delimited with one line per quarter. The first field is the date (year and month), second field is the quarter (1-4), third field is the market price, fourth field is the replacement cost, and fifth field is the value for q itself (market price / replacement cost).

Additional Resources on Q:

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