• Forecasting Japanese Stock Returns with Financial Ratios and Other Variables
  Kohei AonoTokuo Iwaisako

  Abstract

  This paper extends the previous analyses of the forecastability of Japanese stock market returns in two directions. First, we carefully construct smoothed market priceñearnings ratios and examine their predictive ability. We find that the empirical performance of the priceñearnings ratio in forecasting stock returns in Japan is generally weaker than both the priceñearnings ratio in comparable US studies and the price dividend ratio. Second, we also examine the performance of several other forecasting variables, including lagged stock returns and interest rates. We find that both variables are useful in predicting aggregate stock returns when using Japanese data. However, while we find that the interest rate variable is useful in early subsamples in this regard, it loses its predictive ability in more recent subsamples. This is because of the extremely limited variability in interest rates associated with operation of the Bank of Japanís zero interest policy since the late 1990s. In contrast, the importance of lagged returns increases in subsamples starting from the 2000s. Overall, a combination of logged price dividend ratios, lagged stock returns, and interest rates yield the most stable performance when forecasting Japanese stock market returns.

  Introduction

  In our previous study (Aono & Iwaisako, 2010), we examine the ability of dividend yields to forecast Japanese aggregate stock returns using the singlevariable predictive regression framework of Lewellen (2004) and Campbell & Yogo (2006). This paper continues and extends our earlier efforts in two respects. First, we examine the predictive ability of another popular financial ratio, namely, the priceñearnings ratio. This is motivated by the fact that some studies using US data (for example, Campbell & Vuolteenaho, 2004) find that smoothed market priceñearnings ratios have better forecasting ability than dividend yields. We carefully construct Japanese priceñearnings ratios following the methodology pioneered by Robert Shiller (1989, 2005) and examine their ability to forecast aggregate stock returns. We find that the predictive ability of the price dividend ratio is consistently better than that of the priceñearnings ratio.

  2010.10

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• On the Predictability of Japanese Stock Returns using Dividend Yield
  Kohei AonoTokuo Iwaisako

  Abstract

  The aim of this paper is to provide a critical and comprehensive reexamination of empirical evidence on the ability of the dividend yield to predict Japanese stock returns. Our empirical results suggest that in general, the predictability is weak. However, (1) if the bubble economy period (1986—1998), during which dividend yields were persistently lower than the historical average, is excluded from the sample, and (2) if positive autocorrelation in monthly aggregate returns is taken into account, there is some evidence that the log dividend yield is indeed useful in forecasting future stock returns. More specifically, the log dividend yield contributes to predicting monthly stock returns in the sample after 1990 and when lagged stock returns are included simultaneously.

  Introduction

  The conventional present value relationship suggests that the “dividend yield” or “price-dividend ratio” is useful in explaining the behaviors of stock prices (see Campbell, Lo, & MacKinlay 1997, Chap. 7 for a review). Accordingly, there is a large literature examining the ability of the dividend yield to predict future stock returns. Empirical studies of US data include Fama & French (1988), Mankiw & Shapiro (1986), Stambaugh (1986, 1999), Lewellen (2004), Torous, Valkanov & Yan (2004), Campbell & Yogo (2006), Ang & Bekaert (2007), and Cochrane (2008) among others.

  2009.08

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• Understanding the Decline in the Japanese Saving Rate in the New Millennium
  Keiko OkadaTokuo Iwaisako

  Abstract

  This paper investigates why the Japanese household saving rate, which fell from the late 1990s to the first few years of the new millennium, suddenly stabilized after 2003. Analyzing income and spending data for different age groups, we argue that this is explained by Japanese corporate restructuring prompted by the 1997 financial crisis and the resulting labor income decrease being concentrated in older working households. We believe two important changes in income distribution are associated with this mechanism. First, the negative labor income shock, which was mostly borne by the younger generation in the initial stages of the “lost decade” finally spread to older working households in the late 1990s and early 2000s. Second, there was a significant income shift from labor to shareholders associated with corporate restructuring during this time. This resulted in a decline in the wage share, so that the increase in corporate saving offset the decline in household saving.

  Introduction

  It is more than two decades since Fumio Hayashi tried to explain the apparently high Japanese saving rate in his seminal article (Hayashi 1986). Today, Japan is widely recognized as a country with a "declining saving rate". As shown in Figure 1, the Japanese household saving rate was around 18% at the beginning of 1980s. It has been declining ever since, down to 3.3% in 2006. The total decline is now about 15% over little more than a quarter of a century. There is little doubt that this declining trend is mostly explained by the aging of Japanese society (Horioka 1997; Dekle 2005; Chen, Imrohoro · glu, and º Imrohoro · glu 2006; º Braun, Ikeda, and Joines 2008).

  2009.03

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• Disagreement and Stock Prices in the JASDAQ -An Empirical Investigation Using Market Survey Data
  Tokuo Iwaisako

  Abstract

  This article empirically examines “disagreement” models using JASDAQ market data by exploiting institutional investors’ forecasts of future stock prices. We use the standard deviations of the one-month ahead forecasts of stock prices in the QSS Equity Survey as the measure of disagreement in the market. The results indicate that an increase in disagreement is associated with an increase in contemporaneous stock returns and lower average expected returns. In terms of the latter, while the survey data provides an average assessment of marketwide expectations, when disagreement is high the current market price tends to reflect the opinions of more optimistic market participants. These results contrast with comparable findings using TOPIX data (representing larger firms on the Tokyo Stock Exchange’s first section) that contradict the predictions of disagreement models. One reason posited is that firms on the JASDAQ market are much smaller and the number of market participants more limited. Accordingly, institutional “limits of arbitrage”, such as short-sale and liquidity constraints, are more binding and their influence on stock prices is thereby greater.

  Introduction

  This paper uses Japanese data to test the empirical implications of recent developments in behavioral finance, which we refer to as “disagreement” models. These models, starting with seminal contributions by Miller (1977), and Harrison and Kreps (1978), and surveyed in Hong and Stein (2007), display two key elements. First, they assume some disagreement or difference in opinion among investors over the valuation of assets. Second, some institutional factors, typically short-sales constraints, prevent the arbitrage mechanism from working completely. As a result, the market price tends to reflect the expectations of optimistic investors. Accordingly, the informational role of asset prices is partially confined and the market price can be persistently higher than the fundamentals.

  2008.03

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• Disagreement and Stock Prices in the JASDAQ -An Empirical Investigation Using Market Survey Data (in Japanese)
  Tokuo Iwaisako

  Abstract

  行動ファイナンス研究における，投資家間の「意見の不一致のモデル」のインプリケーションを，日本の JASDAQ 市場のデータを用いて検証した．(株)QUICK による，QSS 株式機関投資家の株価予想のサーベイ結果の標準偏差を投資家の「意見の不一致」の尺度として用い，まずそれが現在の株価を上昇させることを示した．さらに，「意見の不一致」が大きい時には，投資家が同時点では観察できないサーベイ予想ベースの予想株価上昇率が低下することを見た．このことは，サーベイ調査がカバーしている市場参加者全体の来月の株価予想の平均に比べ，市場価格に直接反映されている楽観的なサブ・グループのそれが高いことを示唆している．また，制度的な「裁定の限界」から，「意見の不一致」のモデルがより当てはまると考えられる日経 JASDAQ 平均に比べ，より成熟した市場の指数であるTOPIX についての分析結果は，まったくと言っていいほどモデルのインプリケーションを満たしていない．したがって，東証一部のような大規模銘柄に比べ，JASDAQ 市場で取引されているような小規模銘柄に関しては，制度的な「裁定の限界」が株価形成により大きな影響を与えているものと考えられる．

  Introduction

  「行動ファイナンス behavioral finance」という呼び名で括られる研究分野は，近年，日本でも大きく注目を浴びるようになってきた．一般向けの議論で「行動ファイナンス」という言葉が使われる場合，ファイナンスの主流派に対して否定的な意味合いで用いられることが多い．心理学や行動科学に基づくアプローチの優越性・革新性が強調され，伝統的な新古典派アプローチは時代遅れの大艦巨砲主義のように言及されている．

  2008.03

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• The Consumption-Wealth Ratio and the Japanese Stock Market
  Kohei AonoTokuo Iwaisako

  Abstract

  Following Lettau and Ludvigson (2001a,b), we examine whether the consumption—wealth ratio can explain Japanese stock market data. We construct the data series cayt, the residuals from the cointegration relationship between the consumption and the total wealth of households. Unlike the US results, cayt does not predict future Japanese stock returns. On the other hand, it does help to explain the crosssection of Japanese stock returns of industry portfolios. In the US case, cayt is used as a scaling variable that explains time variation in the market beta. In the Japanese case, the movement of cayt is interpreted as the change in the constant terms, hence the change in average stock returns. We also propose to improve cayt by taking real estate wealth into consideration.

  Introduction

  The consumption-based asset pricing model is among the most important benchmarks in financial economics. Yet, its empirical performance with a structural Euler equation of households using aggregate data has been a major disappointment (see Campbell [2003] for a recent survey). Hence, recent studies started looking into other aspects of the consumption-based model. An attractive alternative research strategy is to use disaggregate consumption data, which has been explored by authors such as Mankiw and Zeldes (1991) and Vissing-Jorgensen (2002). More recent studies including Lettau and Ludvigson (2001a,b), Parker and Julliard (2005), and Yogo (2006) examine, using aggregate data, long-run restrictions implied by consumption-based models, and they obtain useful results. In particular, Lettau and Ludvigson (2001a,b) consider the long-run cointegration relationship between consumption and household wealth. They propose to use the “cay” variable, which is in essence the consumption—wealth ratio of the household sector, in both predicting aggregate stock returns and explaining cross-sectional patterns of the US stock market.

  2007.03

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