Japan premium and stock prices: two mirrors of Japanese banking crises

Takatoshi Ito () and Kimie Harada
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Kimie Harada: Graduate School of International Accounting, Chuo University, Tokyo, Japan, Postal: Graduate School of International Accounting, Chuo University, Tokyo, Japan

International Journal of Finance & Economics, 2005, vol. 10, issue 3, 195-211

Abstract: This paper investigates how financial weakness among Japanese banks in the second half of the 1990s was reflected in pricing in the financial markets. Two indicators, the Japan premium (JP) and the stock price spread (SP)-deviation between the bank stock index (BINDEX) and stock price index excluding banks (NINDEX)-were examined. The structural change occurring in the relationship between BINDEX and NINDEX is much earlier than the crisis of November 1997. The Granger causality tests reveal that concerns on profitability and solvency reflected in stock prices affect foreign banks' worry over dollar liquidity positions of the Japanese banks. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2005
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Working Paper: Japan Premium and Stock Prices: Two Mirrors of Japanese Banking Crises (2000)
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DOI: 10.1002/ijfe.259

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