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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.

Suggested Citation

  • Yasushi Hamao & Jianping Mei & Yexiao Xu, 2007. "Unique Symptoms of Japanese Stagnation: An Equity Market Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 901-923, June.
  • Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:4:p:901-923
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    Cited by:

    1. Christian Dreger, 2017. "Long-term growth perspectives in Japan and the Euro area," Asia Europe Journal, Springer, vol. 15(4), pages 363-375, December.
    2. Oikawa, Koki, 2010. "Uncertainty-driven growth," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 897-912, May.
    3. Yasushi Hamao & Kenji Kutsuna & Joe Peek, 2012. "Nice to be on the A-list," Working Papers 12-13, Federal Reserve Bank of Boston.
    4. 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.
    5. repec:bla:jecrev:v:68:y:2017:i:2:p:158-172 is not listed on IDEAS
    6. 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 1943-1977, December.
    7. De Veirman, Emmanuel & Levin, Andrew T., 2012. "When did firms become more different? Time-varying firm-specific volatility in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 578-601.
    8. 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.
    9. Piotr Ciżkowicz & Andrzej Rzońca, 2014. "Interest Rates Close to Zero, Post-crisis Restructuring and Natural Interest Rate," Prague Economic Papers, University of Economics, Prague, vol. 2014(3), pages 315-329.
    10. Emmanuel De Veirman & Andrew T. Levin, 2011. "Cyclical Changes in Firm Volatility," CAMA Working Papers 2011-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    11. De Santis, Roberto A. & Ehling, Paul, 2007. "Do international portfolio investors follow firms' foreign investment decisions?," Working Paper Series 815, European Central Bank.
    12. Chakraborty, Suparna & Peek, Joe, 2016. "Lending to unhealthy firms in Japan during the lost decade: distinguishing between technical and financial health," Working Papers 16-22, Federal Reserve Bank of Boston.
    13. 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.
    14. Piotr Cizkowicz & Andrzej Rzonca & Andrzej Toroj, 2015. "In search for appropriate lower bound.Zero lower bound vs. positive lower bound under discretion and commitment," NBP Working Papers 215, Narodowy Bank Polski, Economic Research Department.

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