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Melancholia and Japanese stock returns – 2003 to 2012

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  • Khuu, Joyce
  • Durand, Robert B.
  • Smales, Lee A.

Abstract

Japan's “lost decades” challenge a central tenet of finance, namely a positive relationship between risk and expected return. We present evidence that Japan's dismal returns are a function of sentiment both at the aggregate market and individual firm level. Utilizing a text-based measure of news sentiment (Thomson Reuters News Analytics) to proxy for investor sentiment, we find that sentiment is predominately negative during our sample period (2003 to 2012) and is associated with negative returns. We also find that the effect of news sentiment is greatest for smaller firms.

Suggested Citation

  • Khuu, Joyce & Durand, Robert B. & Smales, Lee A., 2016. "Melancholia and Japanese stock returns – 2003 to 2012," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 424-437.
  • Handle: RePEc:eee:pacfin:v:40:y:2016:i:pb:p:424-437
    DOI: 10.1016/j.pacfin.2016.05.011
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    2. Khoo, Joye & Durand, Robert B., 2017. "Japanese corporate leverage during the Lost Decades," Pacific-Basin Finance Journal, Elsevier, vol. 46(PA), pages 94-108.

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