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This paper relates cross-sectional differences in returns on Japanese stocks to the underlying behavior of four variables: earnings yield, size, book to market ratio, and cash flow yield. Alternative statistical specifications and various estimation methods are applied to a comprehensive, high-quality data set that extends from 1971 to 1988. The sample includes both manufacturing and nonmanufacturing firms, companies from both sections of the Tokyo Stock Exchange, and also delisted securities. Our findings reveal a significant relationship between these variables and expected returns in the Japanese market. Of the four variables considered, the book to market ratio and cash flow yield have the most significant positive impact on expected returns. [ABSTRACT FROM AUTHOR]

The paper focuses on two countries, Japan and the U.S., to test the integration of capital markets. In Japan, the enactment of the Foreign Exchange and Foreign Trade Control Law in December of 1980 amounted to a true regime switch that virtually eliminated capital controls. Using multifactor asset pricing models, we show that the price of risk in the U.S. and Japanese stock markets was different before, but not after, the liberalization. This evidence supports the view that governments are the source of international capital market segmentation. [ABSTRACT FROM AUTHOR]

Firms differ in the extent to which they "pass through" changes in exchange rates into foreign currency prices and in their "exposure" to exchange rates--the responsiveness of their profits to changes in exchange rates. Because pricing affects profitability, a firm's pass-through and exposure should be related. This paper develops models of exporting firms under imperfect competition to study these related phenomena. From these models we derive the optimal pass-through decisions and the resulting exchange rate exposure. The models are estimated on eight Japanese export industries using both the price data pass-through and financial data for exposure. [ABSTRACT FROM AUTHOR]

We provide evidence of private information in the foreign exchange market. The evidence comes from the introduction of trading in Tokyo over the lunch hour. Lunch-return variance doubles with the introduction of trading, which cannot be due to public information since the flow of public information did not change with the trading rules. We then exploit microstructure theory to discriminate between the two alternatives: private information and mispricing. Four key results support the predictions of private-information models. Three of these involve changes in the intraday volatility U-shape. The fourth is that opening trade causes mispricing's share in variance to fall. [ABSTRACT FROM AUTHOR]

This paper uses the predictability of monthly excess returns on U.S. and Japanese equity portfolios over the U.S. Treasury bill rate to study the integration of long-term capital markets in these two countries. During the period 1971-1990 similar variables, including the dividend-price ratio and interest rate variables, help to forecast excess returns in each country. In addition, in the 1980's U.S. variables help to forecast excess Japanese stock returns. There is some evidence of common movement in expected excess returns across the two countries, which is suggestive of integration of long-term capital markets. [ABSTRACT FROM AUTHOR]

We examine the bidding patterns and auction profits in the Japanese Government Bond (JGB) auctions and empirically test the predictions of auction theory. We find that the average profit in JGB auctions is not reliably different from zero, and the degree of competition and the level of uncertainty are insignificant in determining auction profits. The winning shares of the U.S. dealers are positively related to auction profits, whereas the winning shares of their Japanese counterparts show a negative association. We also find that the share of winnings of Japanese dealers tends to be correlated with the share of winnings of their compatriot dealers but a similar relation is not found for U.S. dealers. [ABSTRACT FROM AUTHOR]

Most of the existing studies on the international capital market are based on a segmented market approach. This approach treats the different national capital markets as separated entities, hardly related to each other. For this reason (under the assumption of market segmentation), comparable capital assets may differ in their return on different national markets. Although market segmentation enjoys a surprisingly large following, it is not the only possible interpretation of the international capital market. The alternative hypothesis, i.e., that prices of capital assets in the international capital market behave as if there is one multinational perfect capital market, should be considered. The one market hypothesis has the advantage of being consistent with much of the accepted economic theory. Also the one market hypothesis is unambiguous where market segmentation can stand for any number of specific imperfect market formations. Market segmentation is widely accepted as the only possible structure of the international capital market. Different currency areas, separated political organizations and trade barriers have been given as a priori evidence for the segmentation of the international capital market. This, however, is not necessarily the case. An examination of the behavior of capital asset prices reveals that the price behavior is consistent with the one market hypothesis. It should be noted, however, that a certain body of data can be consistent with both the one market hypothesis and any one of several specific forms of market segmentation. But as the main theme of this study is to show the validity of the one market approach to the multinational equity market, it is sufficient to show that one cannot reject the one market hypothesis with regard to this market. [ABSTRACT FROM AUTHOR]

The price formation process of JASDAQ IPOs is more transparent than in the United States. The transparency facilitates analysis of important issues in the IPO literature—why offer prices only partially adjust to public information and adjust more fully to negative information, and why adjustments are related to initial returns. The evidence indicates that early price information conveys the underwriter's commitment to compensate investors for acquiring and/or disclosing information. Offer prices reflect pre-IPO market values of public companies and implicit agreements between underwriters and issuers that originate well before the offering. Underadjustment of offer prices is substantially reversed in the aftermarket. [ABSTRACT FROM AUTHOR]

Japanese stock returns are even more closely related to their book-to-market ratios than are their U.S. counterparts, and thus provide a good setting for testing whether the return premia associated with these characteristics arise because the characteristics are proxies for covariance with priced factors. Our tests, which replicate the Daniel and Titman (1997) tests on a Japanese sample, reject the Fama and French (1993) three-factor model, but fail to reject the characteristic model. [ABSTRACT FROM AUTHOR]

We compare dividend policies of U.S. and Japanese firms, partitioning the Japanese data into keiretsu, independent, and hybrid firms. We examine the correlation between dividend changes and stock returns, and the reluctance to change dividends. Results are consistent with the joint hypotheses that Japanese firms, particularly keiretsu-member firms, face less information asymmetry and fewer agency conflicts than U.S. firms, and that information asymmetries and/or agency conflicts affect dividend policy. Japanese firms experience smaller stock price reactions to dividend omissions and initiations, they are less reluctant to omit and cut dividends, and their dividends are more responsive to earnings changes. [ABSTRACT FROM AUTHOR]

The ostensible purpose of the Basle Accord was to standardize bank-capital regulations among the twelve leading industrial countries. Its ulterior goal was to "level the playing field" by eliminating a funding-cost advantage of Japanese banks that had allowed them to capture more than one-third of international lending. The wealth gain for Japanese bank shareholders was 31.63 percent. Wealth effects for shareholders of non-Japanese banks were not significant. These results suggest that the Basle Accord did not eliminate the pricing advantage of Japanese banks, challenging the non-Japanese regulators' contention that the regulation would help level the playing field. [ABSTRACT FROM AUTHOR]

I examine the structure of corporate ownership in a sample of Japanese firms in the mid 1980s. Ownership is highly concentrated in Japan, with financial institutions by far the most important large shareholders. Ownership concentration in independent Japanese firms is positively related to the returns from exerting greater control over management. This is not the case in firms that are members of corporate groups (keiretsu). Ownership concentration and the accounting profit rate in both independent and keiretsu firms are unrelated. The results are consistent with the notion that there exist two distinct corporate governance systems in Japan—one among independent firms and the other among firms that are members of keiretsu. [ABSTRACT FROM AUTHOR]

We study the joint effect of the trading mechanism and the time at which transactions take place on the behavior of stock returns using data from Japan. The Tokyo Stock Exchange employs a periodic clearing procedure twice a day, at the opening of both the morning and the afternoon sessions. This enables us to discern the effect of the clearing mechanism from the effect of the overnight trading halt. While the periodic clearing at the beginning of the trading day is noisy and inefficient, the midday clearing transaction appears to be no worse than the two closing transactions. [ABSTRACT FROM AUTHOR]

In many countries settlements take place a fixed number of business days after the transaction (U.S., Japan). In other countries settlements take place periodically on a fixed date when all transactions performed before this date are settled (U.K., France, Italy). In both cases settlement procedures should cause returns not to be identically distributed over all days. The effect is likely to be the largest on markets where all trades are settled only once a month. An empirical investigation of the largest of those markets, the Paris Bourse, demonstrates the importance of the settlement procedure on the distribution of daily returns. [ABSTRACT FROM AUTHOR]

The results of this study indicate that the CAP Model was applicable to the TSE for the five year period from Oct. 1964 to Sept. 1969. The study has shown that investors in the TSE were compensated for bearing systematic risk. While the risk estimate of any one particular security may contain considerable error, individual errors tend to cancel one another when a portfolio is formed on the basis of risk estimates. The study showed that distinguishably different portfolios could be formed by grouping issues which have been ranked according to their systematic risk and that these portfolios were reasonably stable over time. This implies that past measures of risk can be used in the estimation of future levels of risk. Furthermore, portfolios should be diversified to the extent that risks which have no compensating return are minimized. If the total return and the diversification of the portfolio are controlled, it is then possible to predict the long term return of the portfolio relative to the return of the market. it was also concluded that for comparable indices during this period, the Japanese investor earned higher total returns, but his U.S. counterpart earned more excess returns. Furthermore, the two markets had a relatively low correlation coefficient. This indicates that higher returns could be achieved for the same amount of risk if an investor diversified into both markets instead of only one or that lower risk could be taken for a given level of expected return by employing the same strategy. [ABSTRACT FROM AUTHOR]

We find that about 25 percent of our sample of 171 Japanese multinationals' stock returns experienced economically significant positive exposure effects for the period January 1979 to December 1993. The extent to which a firm is exposed to exchange-rate fluctuations can be explained by the level of its export ratio and by variables that are proxies for its hedging needs. Highly leveraged firms, or firms with low liquidity, tend to have smaller exposures. Foreign exposure is found to increase with firm size. We also find that keiretsu multinationals are more exposed to exchange-rate risk than nonkeiretsu firms. [ABSTRACT FROM AUTHOR]

We examine the effects of bank-firm relationships on firm performance in Japan. When access to capital markets is limited, close bank-firm ties increase the availability of capital to borrowing firms, but do not lead to higher profitability or growth. The cost of capital of firms with close bank ties is higher than that of their peers. This indicates that most of the benefits from these relationships are appropriated by the banks. Finally, the slow growth rates of bank clients suggest that banks discourage firms from investing in risky, profitable projects. However, liberalization of financial markets reduces the banks' market power. [ABSTRACT FROM AUTHOR]

Price limit advocates claim that price limits decrease stock price volatility, counter overreaction, and do not interfere with trading activity. Conversely, price limit critics claim that price limits cause higher volatility levels on subsequent days (volatility spillover hypothesis), prevent prices from efficiently reaching their equilibrium level (delayed price discovery hypothesis), and interfere with trading due to limitations imposed by price limits (trading interference hypothesis). Empirical research does not provide conclusive support for either positions. We examine the Tokyo Stock Exchange price limit system to test these hypotheses. Our evidence supports all three hypotheses suggesting that price limits may be ineffective. [ABSTRACT FROM AUTHOR]

The article discusses fiscal policy in Japan. After summarizing Japanese economic developments from the early 1930s through World War II, the author discusses the worsening economic circumstances that prompted the U.S. government to dispatch Joseph Dodge to Japan as a Minister charged with stabilizing Japan's economy. The objectives and actions of Dodge's mission are discussed, as well as its achievements. The author also examines the work of a Tax Mission that arrived in Japan at around the time of Dodge's departure, headed by Professor Carl S. Shoup.