Tobin's q

Tobin's q[1] is the ratio between a physical asset's market value and its replacement value. It was introduced in 1968 by James Tobin and William Brainard, although the use of the letter "q" did not appear until Tobin's 1969 article "A general equilibrium approach to monetary theory". Tobin writes
One, the numerator, is the market valuation: the going price in the market for exchanging existing assets. The other, the denominator, is the replacement or reproduction cost: the price in the market for the newly produced commodities. We believe that this ratio has considerable macroeconomic significance and usefulness, as the nexus between financial markets and markets for goods and services.


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