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

  • Takatoshi Ito

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

  • Kimie Harada

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

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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File URL: http://hdl.handle.net/10.1002/ijfe.259
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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. Joe Peek & Eric S. Rosengren, 1998. "Determinants of the Japan premium: actions speak louder than words," Working Papers 98-9, Federal Reserve Bank of Boston.
  2. 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.
  3. 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.
  4. 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.
  5. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
  6. repec:ime:imemes:v:19:y:2001:i:s1:p:239-70 is not listed on IDEAS
  7. Quintos, Carmela E., 1998. "Stability tests in error correction models," Journal of Econometrics, Elsevier, vol. 82(2), pages 289-315, February.
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