Risk and Return in Japanese Equity Market

Honda Toshiki
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Honda Toshiki: Graduate School of International Corporate Strategy, Hitotsubashi University

Public Policy Review, 2013, vol. 9, issue 3, 515-530

Abstract: The market portfolio is often used as a benchmark portfolio. Japanese equity market data however shows that the market portfolio is not efficient and furthermore not profitable. The empirical support for CAPM in the Japanese market is weak. Overall, Japanese investors experienced hard time, because they used the market portfolio as their benchmark without careful investigation and adopted many active managers against the benchmark. Not only because few active managers successfully added value but also because they surely increased the total risk and total cost, the portfolios of Japanese investors typically have shown disappointing performance. However, if portfolios are carefully constructed so that parameter estimation risk is not amplified in the process of portfolio formation, there is some evidence to suggest that past return data contains useful information to identify the risk and return trade-off in the Japanese equity market.

Keywords: Japanese Equity Market; Capital Asset Pricing Model; Mean-variance portfolio; Minimum variance portfolio (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2013
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