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Corporate Investment and Portfolio Returns in Japan: A Markov Switching Approach

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  • Chikashi Tsuji

Abstract

This paper explores the profitability of four Japanese higher return equity portfolios and their linkages between corporate investment factor return, the so-called conservative-minus-aggressive (CMA), suggested by Fama and French (2015). Our empirical examinations derive the following evidence. First, in the four Japanese equity portfolios, the smallest and the highest operating profitability portfolio presents the highest return. Second, the smallest and the highest book-to-market (B/M) portfolio, the smallest and moderate investment portfolio, and the smallest and the second strongest momentum portfolio also record higher excess returns than the overall equity market in Japan. Moreover, our analyses via two-regime Markov switching models evidence that for all the four Japanese equity portfolios, there are clearly two regimes: one is positively related to CMA and the other is little or negatively related to CMA. Furthermore, our analyses also reveal that recently, all the four Japanese equity portfolios yield higher returns than CMA with showing weaker linkages between CMA.

Suggested Citation

  • Chikashi Tsuji, 2018. "Corporate Investment and Portfolio Returns in Japan: A Markov Switching Approach," Journal of Management and Strategy, Journal of Management and Strategy, Sciedu Press, vol. 9(2), pages 1-7, May.
    • Handle: RePEc:jfr:jms111:v:9:y:2018:i:2:p:1-7
    DOI: 10.5430/jms.v9n2p1
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    References listed on IDEAS

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    1. Chikashi Tsuji, 2018. "Volatility Regime and Equity Portfolio Return: Evidence from Europe," Applied Economics and Finance, Redfame publishing, vol. 5(3), pages 1-7, May.
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