The Great East Japan Earthquake and Investor Behavior in Japan's Equity Markets

The Japanese stock prices, which had been on the uptrend before the occurence of the Great East Japan Earthquake, dramatically plummeted after the disaster. However, it showed some resilience within a few weeks. In recent years, a large share of transactions in Japan's equity markets has been executed by foreign investors, who conducted more active transactions than usual after the disaster. It was only such foreign investors that purchased Japanese listed equities around the time of the occurence of the disaster. The aggregate trading data of listed equities by main investor groups in Japan shows that the Japanese equities were being propped up by the foreign investors from the beginning of the year 2011. Several preceding literatures on investor groups in Japan show that securities firms often took identical positions with the foreign investors, which means the net purchase by the domestic securities firms also often increased when there was an increase in the net purchase by the foreign investors. However, our research shows that the domestic securities firms and other financial institutions kept on selling equities around the time of the disaster, although the foreign investors were net purchasing. According to our VAR (Vector Autoregression) analysis, a certain pattern of transactions was observed among the domestic investors such as financial institutions and security firms. We also conducted some analyses on the impact of the nuclear power plants' accidents including the stock returns of TEPCO, Tokyo Electric Power Co., Inc., in our VAR analysis. However, there was no special causal relationship observed between the stock returns of TEPCO and the transactions by the foreign investors, who must have been particularly sensitive to the changing situations of the accidents during the period subject to our analysis.