Explain how the Tobin’s q theory establishes a relationship between fluctuations in investment and fluctuations in stock market.

Tobin's q theory is a financial theory that proposes that the market value of a company, as measured by its stock price, should be equal to the replacement cost of its assets. Tobin's q is calculated by dividing the market value of a company's assets by the replacement cost of those assets. If the q value is greater than 1, it indicates that the market value of the company's assets is higher than their replacement cost, which may suggest that the company's stock price is overvalued. If the q value is less than 1, it indicates that the market value of the company's assets is lower than their replacement cost, which may suggest that the company's stock price is undervalued.

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