Further Reforms after the "BIG BANG": The Japanese Government Bond Market

This paper identifies key steps for further development of the JGB market in aligning its infrastructures with those of the U.S. and U.K. government securities markets. One major impediment to the JGB market development is commingled management of government assets and liabilities. Especially Fiscal Investment and Loan Program's inadvertent influence over monetary policy not only causes the cost of government-issued debt to increase but also creates serious impediments to the development of the JGB markets. Therefore, it is recommended that Ministry of Finance's involvement in the JGB market should be limited to issuer's function in the capacity of government debt manager and a "hands-off" policy be adopted by the Ministry of Finance to give all FILP agencies complete autonomy. Additional reform measures are recommended to create a more efficient and effective JGB market: (i) promote JGBs with non-resident investors; (ii) introduce the primary dealer system; (iii) adopt the uniform-price auction method; (iv) allow when-issued trading; (v) develop a truly American-style REPO market; and (vi) introduce STRIPS.

A Note on Shareholder Oversight and the Regulatory Environment: The Japanese Banking Experience

During a period where Japanese banks operated under a less restrictive regulatory environment, 1986-88, we find positive relationships between bank risk and ownership concentration. This empirical evidence reveals shareholder activism by the largest shareholders. During the periods immediately before and immediately after this particular subperiod, which are characterized by stricter regulatory environments, we do not observe evidence of shareholder activism. Taken together, these results are consistent with the argument that restrictive regulation and shareholder oversight are substitutes for one another. Time-series results and bank performance results yield consistent evidence.Large shareholders, Japanese banks, bank risk, shareholder oversight

An Anatomy of the Magnet Effect: Evidence from the Korea Stock Exchange High-Frequency Data

We examine the existence and the forms of the magnet effect using transaction files and limit order book of the Korea Stock Exchange. A significant magnet effect exists in all five market microstructure variables (the rate of return, trading volume, volatility, order flow, and order type) when the limit hit becomes imminent. Specifically, investors place increasingly more orders, choose proportionally more market orders, and frequently reposition existing orders to advance transactions. We also find that: (i) a narrower price limit exhibits higher acceleration rates in all five variables compared to a wider price limit; and (ii) the upper limit hits draw heavier volumes of transactions, order submissions and market orders than the lower limit hits. We confirm that the magnet effect is a phenomenon unique only to markets with daily price limit systems.Price Limit, Magnet Effect, Rate of Return, Trading Volume, Volatility, Order Flow, Order Type, Price Trajectory, Korea Stock Exchange

The Impact of Futures Trading on Cash Market Volatility: Evidence from the Tokyo Stock Exchange

This paper has examined Japanese stock market volatility using alternative estimates of volatility and several testing procedures to compare the time periods before and after the introduction of index futures contracts. On the basis of 100 randomly selected stocks, empirical evidence from these texts indicates that futures trading had an insignificant impact on prove volatility in the cash market. The results are generally consistent with what has been reported for the U.S. market

Nominal Stock Price Anchors: A Global Phenomenon?

Weld et al. (2009) find that the average nominal U.S. stock price has been approximately $25 since the Great Depression. They report that this nominal price fixation is primarily a U.S. or North American phenomenon. Using a larger data set from 38 countries, we show that this nominal price fixation is a global phenomenon. We exploit the introduction of the euro in 1999 to show that stock splits maintain these nominal stock price anchors. Generally, firms in countries with larger drops in nominal prices had fewer stock splits after stock prices were displayed in euros

East Asian financial market integration: reality or illusions?

The 1997·1998 Asian financial crisis, the agenda for local currency bonds and regional bond markets was a priority as an alternative vehicle for domestic saving mobilization and as a means of mitigating the dual mismatch problems of currency and maturity. To achieve this, the East Asian nations will need to be the main players in the regional bond market. Further, the corporation of Japan, China and Korea as the significant players in the regional bond is necessary to provide further liquidity and volume in the markets. The total investment in bond in the ASIAN, excluding Japan is less than one percent of total global bond investment. The potential development of East Asian bond markets is encouraging considering that the markets have increased from us$40l.7b in 1997 to us$I,419.8b in 2004, a 19.8% annual growth. However this is relatively small compared to the sIze of bond markets in other regions. For instance, the relative size of ASlUn bonds outstanding as measured by the percentage of combined GDPs amounted to 40% in 2004. The same figures for Japan, USA and the EU are 190%, 160% and 90% respectively. In the ASEAN region, only Korea and Malaysia have a relatively large corporate bond markets. Most of the bonds in the region are government issued. Issues related to bond market are discussed by looking at the weaknesses and what are needed to encourage the development of the market. Three major concerns are identified; a strong sense of regionalism. overemphasis on the public sector's role and preoccupation with the harmonization of rules and regulations. On the hand, two issues need to be done; the creation of necessary infrastructure and the elimination of Impediments to cross-border investment