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Does the Japanese stock market price bank risk? evidence from financial firm failures

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Author Info
Elijah Brewer, III
Hesna Genay
William C. Hunter
George Kaufman
Abstract

The efficiency of Japanese stock market to appropriately price the riskiness of Japanese firms has been frequently questioned, particularly with respect to Japanese banks which have experienced severe financial distress in recent years. This paper examines the response in the stock market returns of Japanese commercial banks to the failure of four commercial banks and two securities firms between 1995 and 1998. The analysis finds that the stock market responded to new information of the failures and did so rationally. Financially weaker banks were affected more adversely by the failure of other banks and financial institutions than were healthier banks. This suggests that the Japanese stock market is more efficient, even for banks, than often perceived.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-99-31.

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Date of creation: 1999
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Handle: RePEc:fip:fedhwp:wp-99-31

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Keywords: Stock market - Japan ; Stock - Prices - Japan ; Japan;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Cornell, Bradford & Shapiro, Alan C., 1986. "The reaction of bank stock prices to the international debt crisis," Journal of Banking & Finance, Elsevier, vol. 10(1), pages 55-73, March. [Downloadable!] (restricted)
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  13. Ingyu Chiou, 1999. "Daiwa bank's reputational crisis: valuation effects on bank-firm relationships," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 206-241.
  14. Joe Peek & Eric S. Rosengren, 1999. "Determinants of the Japan Premium: Actions Speak Louder Than Words," NBER Working Papers 7251, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Swary, Itzhak, 1986. "Stock Market Reaction to Regulatory Action in the Continental Illinois Crisis," Journal of Business, University of Chicago Press, vol. 59(3), pages 451-73, July. [Downloadable!] (restricted)
  16. Flannery, Mark J, 1998. "Using Market Information in Prudential Bank Supervision: A Review of the U.S. Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 273-305, August.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Elijah Brewer, III & Hesna Genay & William Curt Hunter & George G. Kaufman, 2002. "The value of banking relationships during a financial crisis: evidence from failures of Japanese banks," Working Paper Series WP-02-20, Federal Reserve Bank of Chicago. [Downloadable!]
  2. L. Baele & R. Vander Vennet & A. Van Landschoot, 2004. "Bank Risk Strategies and Cyclical Variation in Bank Stock Returns," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/217, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  3. Elijah Brewer, III & Hesna Genay & William Curt Hunter & George G. Kaufman, 2002. "The value of banking relationships during a financial crisis: evidence from failures of Japanese banks," Proceedings, Federal Reserve Bank of San Francisco, issue Sep. [Downloadable!]
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