Stock Index Autocorrelation and Cross-autocorrelations of Size-sorted Portfolios in the Japanese Market

Random walk hypothesis, Variance ratio tests, Japanese stock market

Stock Index Autocorrelation and Cross-autocorrelations of Size-sorted Portfolios in the Japanese Market

Following Lo and MacKinlay's work on the U.S. market (1988, 1990), this paper investigates the autocorrelation of the market index and the cross-autocorrelations of size-sorted portfolios in the Japanese market. The structure of the cross-autocorrelations in the Japanese market is very similar to that of the U.S. in the sense that there are lead-lag relations running from larger stocks to smaller stocks, which will create positive autocorrelation in the market index. Although we have found no autocorrelation in the popular Japanese TOPIX market index, it is because TOPIX puts much more weight on larger stocks compared to the CRSP index for the U.S. market. However, such a cross-autocorrelation structure disappeared during the latter half of the 1990s, as the largest stocks in the Japanese market began to exhibit negative autocorrelation. The possibility of a serious financial crisis during this period provides an explanation for negative autocorrelation. Some empirical evidence is provided for this explanation.

Household Portfolios in Japan: Interaction between Equity and Real Estate Holdings over the Life Cycle

I study the relationship between portfolio choice and age for the Japanese households by means of micro data and by paying particular attention to the interaction between decisions to hold stocks and real estate. The major findings are: First, equity shares in financial wealth (S/FW) increase with age among young households, peaking in the fifties age group, then becoming constant. This peak comes in a much later stage of the life cycle compared with Amerkis and Zeldes (2001) report about U.S. households. Second, we observe exactly the same age-related pattern for real estate shares in household total wealth (RE/TW). Third, with respect to both shares, S/FW and RE/TW, the age-related patterns are mostly explained by the decision to hold or not to hold stocks/real estate. Fourth, no age-related pattern in equity holding is observed for households that do not own real estate. These findings suggest that the age-related pattern observed in stock holding will be mostly explained by household's tenure choice of housing. Households who are to purchase and have just purchased houses cannot take risky positions in financial investment because they are saving for down payments or taking heavily leveraged positions by taking out housing loans. Therefore any serious attempt at modeling Japanese households' dynamic portfolio choice should incorporate the effect of housing tenure choice. In the second half of the paper, we draw some policy implications from these findings.

Explaining Asset Bubbles in Japan

This paper examines the stock and land price behaviors during the bubble economy period (the second half of the 1980s), paying considerable attention to the linkage of the two markets and the effects of monetary policy. In particular, we examine whether the booms in these asset prices can be justified by changes of the fundamental economic variables such as the interest rates or the growth of the real economy. A complex chain of events is needed to explain the process of asset price inflation and deflation. Our empirical results suggest (i) that the initial increases of asset prices are sown by a sharp increase in bank lending to real estate; (ii) that a considerable comovement between stock and land prices is consistent with a theory that emphasizes the relationship between the collateral value of land and cash flow for constrained firms; (iii) that although the real economy was doing well and the interest rates were still low, asset price increases from mid-1987 to mid-1989 cannot be fully justified by the movement of fundamentals alone; and (iv) the stock price increase in the second half of 1989 and the land price increase in 1990 is not explained by any asset pricing model based on fundamentals or rational bubbles.

Stock index autocorrelation and cross-autocorrelations of the size-sorted portfolios in the Japanese market

Following Lo and MacKinlay's works on the U.S. market (1988, 1990), this paper studies the autocorrelation of the market index and the cross-autocorrelations of the size-sorted portfolios in the Japanese market. The structure of the crossautocorrelations in the Japanese market is found to be very similar to that of the U.S. in the sense that there exists lead-lag relations running from larger stocks to smaller stocks and they will create positive autocorrelation in the market index. Although we find no autocorrelation in the popular Japanese market index such as TOPIX, it is because TOPIX puts much more weight on larger stocks compared with CRSP index for the U.S. market. However, recently such a structure of the Japanese market has become unstable and I argue the fact that it is the largest stocks which began to show negative autocorrelation since the second half of the 1990s that will explain it

Saving-Investment Balance and Fiscal Sustainability of Japan: A View from the JGB Market

This paper provides an overview of the sustainability of Japan’s government debt, emphasizing the viewpoint of market participants in the Japanese government bonds (JGB) market. The Japanese government will be able to finance its debt as long as current surpluses continue, meaning there is sufficient domestic demand for JGB. Looking at domestic investors’ portfolio choices, both life insurance companies and pension funds are increasing their holdings of long-term government bonds to match the maturities of their assets and their payments to households. Japanese banks, on the other hand, are increasing their holdings of short-term government debt, almost proportionally to the increase in their deposits. However, there is substantial heterogeneity in portfolio choice. Three megabank groups (Mitsubishi–Tokyo–UFJ, Mizuho, Sumitomo–Mitsui) and large regional banks have decreased their portfolio weights of JGB recently. Smaller banks specializing in small-firm lending and agricultural lending as well as Japan Post Bank (Yu-cho) have increased the proportion of government debt in their portfolios. Hence, potential losses in their portfolios, once the JGB yield starts to increase, are much higher with the latter group of financial institutions

Household Portfolios in Japan

This paper provides an in-depth review and analysis of household portfolios in Japan. (1) Using both aggregate and disaggregate data, it is shown that the shares of equities in household financial wealth have been decreasing throughout the 1990s. Stock market participations of Japanese households also have declined in the last decade. This is in sharp contrast to the U.S. and European countries in which increasing trends in household stock holdings are observed. (2) Using survey data, age-related variation in stock shares in financial wealth is analyzed. Equity shares in financial wealth increases with age among young households, peaking in the fifties age group, then becoming constant. This peak comes in a much later stage of the life-cycle compared to other countries. Stock market participation varies in a way very similar to unconditional equity shares, while equity shares conditional on ownership exhibit no significant age-related pattern. This implies the age-related patterns are mostly explained by the decision to hold or not to hold stocks at all. Such a mechanism is the same as previous studies reporting about western countries. (3) Owner-occupied housing has significantly positive effect on stock market participation and stock shares in financial wealth. This suggests that the age-related pattern observed in stock holding cannot be analyzed separately from household's tenure choice of housing. Therefore any serious attempt at modeling Japanese households' dynamic portfolio choice should incorporate the effect of housing tenure choice.