Regional Equity Risk Premium Convergence: The case of Japan
This paper attempts to evaluate the time-varying integration of Japanese stock market from a regional perspective, by using a conditional version of the international capital asset pricing model (ICAPM) allowing for dynamic changes in the degree of market integration, regional market risk price, currency risk price and local market risk price. Main findings are as follows: i) the prices of risk in Japan are extremely sensitive to major international economic and political events such as the different monetary and financial crises in Asian and Latin American countries in 1997, 1998 and 2001; ii) the level of market openness and development of the stock market satisfactorily explain the time-varying degree of Japanese stock integration.
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