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An analysis of Japanese stock return dynamics conditional on U.S. Monday holiday closures

  • Takato Hiraki
  • Edwin D. Maberly

This paper examines a unique data set consisting of Japanese equity returns for the Friday, Monday, and Tuesday surrounding U.S. Monday holiday closures. The objective is to neutralize the impact of spillover effects from New York to Tokyo. Prior studies find that Japanese returns are negative on Tuesday and anomalous; this phenomenon is known as the Japanese-Tuesday effect. One explanation for the Japanese-Tuesday effect is that there exists a cause and effect relationship with Monday returns in New York. Historically, Monday returns in New York are negative, a phenomenon known as the U.S.-Monday effect. The empirical results show that U.S. Monday closures have a significant impact on Japanese return dynamics for surrounding trading days. The empirical evidence does not support the hypothesis that the U.S.-Monday and Japanese-Tuesday effects are related. Potential explanations for the occurrence and then disappearance of the Japanese-Tuesday effect rely on microstructure properties unique to Tokyo. More recently, spillover effects from New York to Tokyo have increased in intensity, and this is attributed to the introduction of the Nikkei 225 index on the SIMEX.

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Paper provided by Federal Reserve Bank of Atlanta in its series FRB Atlanta Working Paper with number 2000-6.

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Date of creation: 2000
Date of revision:
Handle: RePEc:fip:fedawp:2000-6
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  1. Solnik, Bruno, 1983. " International Arbitrage Pricing Theory," Journal of Finance, American Finance Association, vol. 38(2), pages 449-57, May.
  2. Karolyi, G Andrew & Stulz, Rene M, 1996. " Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements," Journal of Finance, American Finance Association, vol. 51(3), pages 951-86, July.
  3. Hiraki, Takato & Maberly, Edwin D., 1995. "Are preholiday returns in Tokyo really anomalous? If so, why?," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 93-111, May.
  4. Kiyoshi Kato, 1990. "Weekly Patterns in Japanese Stock Returns," Management Science, INFORMS, vol. 36(9), pages 1031-1043, September.
  5. Puffer, Marlene K., 1991. "Private information and weekend volatility in the Tokyo and New York stock markets," Journal of Banking & Finance, Elsevier, vol. 15(2), pages 407-423, April.
  6. Stulz, ReneM., 1981. "A model of international asset pricing," Journal of Financial Economics, Elsevier, vol. 9(4), pages 383-406, December.
  7. Cho, D Chinhyung & Eun, Cheol S & Senbet, Lemma W, 1986. " International Arbitrage Pricing Theory: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 41(2), pages 313-29, June.
  8. Ziemba, William T., 1991. "Japanese security market regularities : Monthly, turn-of-the-month and year, holiday and golden week effects," Japan and the World Economy, Elsevier, vol. 3(2), pages 119-146, September.
  9. French, Kenneth R., 1980. "Stock returns and the weekend effect," Journal of Financial Economics, Elsevier, vol. 8(1), pages 55-69, March.
  10. Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
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