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Japan premium and stock prices: two mirrors of Japanese banking crises

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  • Takatoshi Ito

    (Faculty of Economics, The University of Tokyo, Japan)

  • Kimie Harada

    (Graduate School of International Accounting, Chuo University, Tokyo, Japan)

Abstract

This paper investigates how financial weakness among Japanese banks in the second half of the 1990s was reflected in pricing in the financial markets. Two indicators, the Japan premium (JP) and the stock price spread (SP)-deviation between the bank stock index (BINDEX) and stock price index excluding banks (NINDEX)-were examined. The structural change occurring in the relationship between BINDEX and NINDEX is much earlier than the crisis of November 1997. The Granger causality tests reveal that concerns on profitability and solvency reflected in stock prices affect foreign banks' worry over dollar liquidity positions of the Japanese banks. Copyright © 2005 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 10 (2005)
Issue (Month): 3 ()
Pages: 195-211

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Handle: RePEc:ijf:ijfiec:v:10:y:2005:i:3:p:195-211

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  1. Gregory, Allan W. & Nason, James M. & Watt, David G., 1996. "Testing for structural breaks in cointegrated relationships," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 321-341.
  2. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  3. Saito, Makoto & Shiratsuka, Shigenori, 2001. "Financial Crises As the Failure of Arbitrage: Implications for Monetary Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 239-270, February.
  4. Peek, Joe & Rosengren, Eric S., 2001. "Determinants of the Japan premium: actions speak louder than words," Journal of International Economics, Elsevier, vol. 53(2), pages 283-305, April.
  5. Quintos, Carmela E., 1998. "Stability tests in error correction models," Journal of Econometrics, Elsevier, vol. 82(2), pages 289-315, February.
  6. Takatoshi Ito & Kimie Harada, 2003. "Market Evaluations of Banking Fragility in Japan: Japan Premium, Stock Prices, and Credit Derivatives," NBER Working Papers 9589, National Bureau of Economic Research, Inc.
  7. repec:ime:imemes:v:19:y:2001:i:s1:p:239-70 is not listed on IDEAS
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Cited by:
  1. Takatoshi Ito, 2004. "Inflation Targeting and Japan: Why has the Bank of Japan not Adopted Inflation Targeting?," RBA Annual Conference Volume, in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.
  2. Woon Gyu Choi & David Cook, 2005. "Stock Market Liquidity and the Macroeconomy," IMF Working Papers 05/6, International Monetary Fund.
  3. Takatoshi Ito & Frederic S. Mishkin, 2006. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 131-202 National Bureau of Economic Research, Inc.
  4. Arikawa Yasuhiro & Miyajima Hideaki, 2005. "Relationship Banking in post Bubble Japan: Co-existence of soft-and hard budget constraint," Discussion papers 05015, Research Institute of Economy, Trade and Industry (RIETI).
  5. repec:fip:fedfpr:00004 is not listed on IDEAS
  6. Harada, Kimie & Ito, Takatoshi, 2011. "Did mergers help Japanese mega-banks avoid failure? Analysis of the distance to default of banks," Journal of the Japanese and International Economies, Elsevier, vol. 25(1), pages 1-22, March.
  7. Hideaki Miyajima & Yishay Yafeh, 2003. "Japan's Banking Crisis: Who has the Most to Lose?," Discussion papers 03010, Research Institute of Economy, Trade and Industry (RIETI).
  8. Harada, Kimie & Ito, Takatoshi & Takahashi, Shuhei, 2013. "Is the Distance to Default a good measure in predicting bank failures? A case study of Japanese major banks," Japan and the World Economy, Elsevier, vol. 27(C), pages 70-82.
  9. Takeo Hoshi & Anil K Kashyap, 2008. "Will the U.S. Bank Recapitalization Succeed? Eight Lessons from Japan," NBER Working Papers 14401, National Bureau of Economic Research, Inc.
  10. Suresh Sundaresan, 2001. "Supervisor and Market Analysts: What Should Research be Seeking?," Journal of Financial Services Research, Springer, vol. 20(2), pages 275-280, October.
  11. Takatoshi Ito & Kimie Harada, 2004. "Bank Fragility in Japan, 1995-2003," CESifo Working Paper Series 1137, CESifo Group Munich.
  12. Imai, Masami, 2006. "Market discipline and deposit insurance reform in Japan," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3433-3452, December.
  13. Wali Ullah & Yasumasa Matsuda, 2014. "Generalized Nelson-Siegel Term Structure Model : Do the second slope and curvature factors improve the in-sample fit and out-of-sample forecast?," TERG Discussion Papers 312, Graduate School of Economics and Management, Tohoku University.
  14. Takatoshi Ito & Kimie Harada, 2003. "Market Evaluations of Banking Fragility in Japan: Japan Premium, Stock Prices, and Credit Derivatives," NBER Working Papers 9589, National Bureau of Economic Research, Inc.
  15. Masami Imai, 2006. "Market Discipline and Deposit Insurance Reform in Japan," Wesleyan Economics Working Papers 2006-007, Wesleyan University, Department of Economics.

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