Common Risk Factors and the Macroeconomy: New Evidence from the Japanese Stock Market

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractUsing new data on returns and risk factors the paper considers the stock performance on the Japanese market, which is the second largest in the world and operates under unique macroeconomic conditions. We nd that the CAPM model is not an adequate approach for the Japanese market. The Carhart model performs reasonably well but fails to reject the null hypothesis of a zero intercept for the full period. Extended tests reveal a structural change in asset prices in the year 1998. When separating the sample into two periods, the standard four factor model explains market returns much better. We show that the relation between stock returns and risk factors is affected by macroeconomic conditions, especially when considering the momentum strategy. The Japanese case illustrates the necessity of considering structural instability related to the macroeconomic development, which is especially important for countries and time periods with a sluggish economy.

Pairs trading: does volatility timing matter?

“…2 For the Japanese market, the yen-based Fama-French factors computed by Stephano Marmi 3 are considered. Past studies on the performance of the Japanese stock market reflect a mixed performance of the standard risk models (Bretschger and Lechthaler, 2014). The intercepts, excluding transaction costs, remain significantly positive for most of the 24 cases.…”

Skewness Preference and Asset Pricing: Evidence from the Japanese Stock Market

“…Motivated by the high book-to-market premium in Japanese stocks, Daniel et al (2001) examined the value premium of Japanese stock return over the period 1975-1997 and the results reject the Fama-French three-factor model. A more recent study by Bretschger and Bretschger and Lechthaler (2012) also observe that the CAPM model does not hold true in the Japanese stock market.…”

An Empirical Review of Asset Pricing Models for the Japanese Share Market

“…Research by Kubota and Takehara (1997) showed that the Fama French three-factor model is appropriate for the Japanese market. Likewise, Bretschger and Lechthaler (2012) examine the model using data from July 1984 to July 2009, and find that the model captures common variation in share returns. In contrast to this, research by Daniel, Titman and Wei (2001) employs data from the Tokyo Stock Exchange for the period 1971 to 1997 to test the performance of the Fama French three-factor model.…”