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Unique Symptoms of Japanese Stagnation: An Equity Market Perspective

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  • YASUSHI HAMAO
  • JIANPING MEI
  • YEXIAO XU

Abstract

This paper documents several unique financial symptoms of Japanese economic stagnation in the 1990s. We find a surprising "fall" in firm-level volatility and turnover in Japanese stocks after the market crash in 1990. These results stand in sharp contrast to the U.S. case, where firm-level volatility generally "increases" after a market crash. Further analysis reveals a parallel sharp reduction in earnings heterogeneity among Japanese firms. Preliminary evidence suggests that the reduction in firm-level volatility may be related to Japanese business group protection. The large decrease in firm-level volatility may impede the equity market's information role, as it has made it more difficult over the past decade for both investors and managers to distinguish high quality from low-quality firms. Copyright 2007 The Ohio State University.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 39 (2007)
Issue (Month): 4 (06)
Pages: 901-923

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Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:4:p:901-923

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Emmanuel De Veirman & Andrew T. Levin, 2012. "When Did Firms Become More Different? Time-Varying Firm-Specific Volatility in Japan," CAMA Working Papers 2012-43, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Cizkowicz, Piotr & Rzonca, Andrzej, 2011. "Interest rates close to zero, post-crisis restructuring and natural interest rate," MPRA Paper 36989, University Library of Munich, Germany.
  3. Emmanuel De Veirman & Andrew Levin, 2009. "Measuring Changes in Firm-Level Volatility: An Application to Japan," Reserve Bank of New Zealand Discussion Paper Series DP2009/20, Reserve Bank of New Zealand.
  4. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-77, December.
  5. De Santis, Roberto A. & Ehling, Paul, 2007. "Do international portfolio investors follow firms’ foreign investment decisions?," Working Paper Series 0815, European Central Bank.
  6. Rod Tyers & Ying Zhang, 2011. "Japan's Economic Recovery: Insights from Multi-Region Dynamics," Economics Discussion / Working Papers 11-13, The University of Western Australia, Department of Economics.
  7. Oikawa, Koki, 2010. "Uncertainty-driven growth," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 897-912, May.
  8. Yasushi Hamao & Kenji Kutsuna & Joe Peek, 2012. "Nice to be on the A-list," Working Papers 12-13, Federal Reserve Bank of Boston.
  9. Oikawa, Koki, 2013. "Cyclical behavior of firm-level volatility: An explanation for the contrast between the United States and Japan," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 452-464.

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