Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171603
Authors: 
Bretschger, Lucas
Lechthaler, Filippo
Year of Publication: 
2012
Series/Report no.: 
Economics Working Paper Series 12/160
Abstract: 
Using 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 find 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.
Subjects: 
Risk factors
value
size
momentum
Japanese stocks
macroeconomic conditions
structural break
JEL: 
G12
G15
G01
C89
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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