Исследование применимости моделей оценки краткосрочной доходности: пример фондового рынка Японии
Эта магистерская работа посвящена изучению применимости различных моделей ценообразования активов для оценки краткосрочной доходности акций на японском фондовом рынке. Для этого CAPM, две спецификации интертемпорального CAPM, 3-факторная и 5-факторная модели Фама-Френча сравниваются между собой. Данные с рынка США указывают на превосходство ICAPM над тремя другими моделями. Тем не менее, эмпирические данные указывают на то, что на самом деле трехфакторная модель Фама-Френча является наилучшей моделью для оценки краткосрочной доходности на японском фондовом рынке. Кроме того, было показано, что первоначальные доказательства в пользу интертемпоральной CAPM не были достоверными даже пдля рынка США.
Japanese economy is one of the biggest in the world. According to NASDAQ reports in 2019 the nominal GDP of Japan was circa $5 trillion which constituted for 6% of the global GDP. Moreover, Tokyo Stock Exchange despite being less popular that NYSE, NASDAQ or London exchange is actually the third biggest stock exchange in the world and even though total market capitalization of companies listed on TSE is times less than that of NYSE or NASDAQ, it’s still 40% bigger than the London exchange. TSE is a home for such big chips as Toyota, NTT, Sony or KDDI.
Taking this into consideration, it’s surprising how unstudied the Japanese financial market is. According to EBSCO search results, there are over 659 thousand articles that are dedicated solely to USA financial market, but only 18 thousand is dedicated to Japanese one and 55 thousand dedicated to European market. These results are even more impressive when compared to the ratios of the GDPs of these markets or market capitalizations of their stock markets. The overall market capitalization of all major European stock exchanges is just 46% bigger than the TSE capitalization, while there are three times more articles dedicated to them.
Nevertheless, understanding financial markets and how prices on them are formed is crucial for any individual involved in economic activities.
Since the First Agricultural Revolution around 12,500 years ago financial institutions were developing alongside humanity and by now have become one of the most complex and fundamental parts of our civilization. Kill financial institution, remove the very idea of money or exchange and our society will crumble in minutes. This is why understanding and being able to forecast the behavior of these institutions and processes composing them became so fundamental, especially now when this market grew to become one of the biggest on Earth with some researches estimating the derivative market alone to be 10 times more than world’s total GDP.
That is why this sphere now attracts world’s best scholars whose bread and butter is to come up with complex formulas that explain certain financial phenomena. One of the main topics of their research through-out the years were returns. How do I turn $1 into $2? Studying the processes of how pricing of financial assets works, brought fame to many scholars including Eugene Fama or William Sharp. And still, after some of the greatest minds of our time spending their lives understanding these mechanisms, there are more to be understood than what we understand already.
But understanding prices and returns is important not only because we need to know how much money we will have tomorrow. It’s also about how much companies and whole economies will cost that directly translates into the wealth of the nation.
If we put it into the Corporate Finance perspective, understanding pricing might be important for the following reasons:
• It allows corporations to estimate their cost of borrowing;
• It allows investors to correctly understand the expected return on investments (whether on financial market or into tangible projects;
• It allows analysts to prepare accurate reports that will then be used for decision making by governments, corporate management, investors and other stakeholders.
Probably the most famous model for asset price estimation is Capital Asset Pricing Model that is based on the discoveries of a Nobel Prize winner Henry Markowitz and Efficient Market Hypothesis.
However, since 1960s evidences were piling up suggesting that actually CAPM fails to account for certain irrationalities in human behavior that deviate from EMH predictions. These shortcomings of CAPM were later called “anomalies” and were studied by Fama and French among others.
After that, various CAPM improvements or analogues were emerging, out of which 3-factor model developed by Fama and French is probably the most popular one. And obviously these models are constantly tested for fitness on regional or global markets. Recently, Santa-Clara md Maio have shown that Intertemporal CAPM proposed by Merton in 1973 has higher explanatory and forecasting power on US market compared to CAPM, Fama-French models and other models.
Despite the recent findings of Santa Clara and Maio, ICAPM is still a quite unstudied model. In EBSCO there are only 156 articles dedicated to this model, while there more than 650 articles on Fama French model and over 4 thousand articles that study CAPM.
However, even though there is a vast academic literature on the performance of different scientific financial models on global and regional markets, based on the survey conducted on finance practitioners, the majority of them do not implement any theoretical models but CAPM. In most cases CAPM is enhanced by in-house factors developed by the organization itself.
The goal of this research if to assess the applicability of the Intertemporal Capital Asset Pricing Model to estimating the short-term returns on the Japanese stock market.
The subject of the study is Intertemporal Capital Asset Pricing Model.
The object of the study is stock prices on Tokyo Stock Exchange.
To attain the defined goal the following tasks were set:
• Review the academic research on asset pricing models and specifically ICAPM;
• Run ICAPM calculations on Tokyo Stock Exchange data;
• Compare ICAPM performance to other widely used asset pricing models;
• Derive the conclusion on the applicability of ICAPM based on the obtained results.
This research paper is structured in the following manner:
• Part 2 provides the review of the Japanese stock market;
• Part 3 covers contains the review of the research on CAPM, ICAPM and other asset pricing models;
• Part 4 presents the overview of the sample and the research methodology;
• Part 5 is dedicated to the main results of the study;
• Part 6 concludes.
Articles:
Alex D. Patelis. Stock Return Predictability and The Role of Monetary Policy. The Journal of Finance, Volume 52, Issue 5. 18 April 2012.
Bajpai P., The 5 Largest Economies In The World And Their Growth In 2020. Jan. 22, 2020. Available at: https://www.nasdaq.com/articles/the-5-largest-economies-in-the-world-and-their-growth-in-2020-2020-01-22
Ben S. Bernanke Kenneth N. Kuttner. What Explains the Stock Market’s Reaction to Federal Reserve Policy? March 2004 Available at: https://www.federalreserve.gov/pubs/feds/2004/200416/200416pap.pdf
Brusa F., Savor P., Wilson M. One Central Bank to Rule Them All. August 2018. Available at: https://sites.temple.edu/psavor/files/2018/08/One-Central-Bank-to-Rule-Them-All-Aug-2018.pdf
Campbell, John Y. A variance decomposition for stock returns. Economic Journal 101, no. 405, 1991. pp. 157-179.
Dimson E., Marsh P., Staunton M. Does hiking damage your wealth? Available at: http://www.q-group.org/wp-content/uploads/2016/09/Dimson_paper.pdf
Eiji O., Japan’s 1968: A Collective Reaction to Rapid Economic Growth in an Age of Turmoil. Translation by Kapur N., Malissa S., Poland S. The Asia-Pacific Journal. Volume 13, Issue 12, Number 1, Mar 23, 2015.
Eugene F. Fama, Kenneth R. French. The Cross‐Section of Expected Stock Returns. The Journal of Finance, Volume 47, Issue 2. June 1992.
Eugene F. Fama, Kenneth R. French. Average Returns, B/M, and Share Issues. CRSP Working Paper No. 619. 20 May 2007.
Eugene F. Fama and James D. MacBeth. Risk, Return, and Equilibrium: Empirical Tests. The Journal of Political Economy, Vol. 81, No. 3 (May – Jun., 1973), pp. 607-636.
Hayes A. Fama and French Three Factor Model. Available at: https://www.investopedia.com/terms/f/famaandfrenchthreefactormodel.asp
Ito. T. Great Inflation and Central Bank Independence in Japan. National Bureau of Economic research. 1050 Massachusetts Avenue, Cambridge, MA 02138, February 2010
Jack L. Treynor. Market Value, Time, and Risk. August 8, 1961. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2600356
Jegadeesh N., Titman S. Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency. The Journal of Finance, Vol. 48, No. 1. (Mar., 1993), pp. 65-91.
John Y. Campbell, Hamao Y. Predictable Stock Returns in the United States and Japan: A Study of Long-Term Capital Market Integration. Journal of Finance, Volume 47, No. 1, pp. 43-69. March 1992.
John R. Grahama, Campbell R. Harvey. The theory and practice of corporate finance: Evidence from the Field. Journal of Financial Economics, Volume 60, Issues 2–3, May 2001, pp.187-243.
Lintner J. The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets. The Review of Economics and Statistics, Vol. 47, No. 1 (Feb., 1965), pp. 13-37.
Mark M. Carhart. On Persistence in Mutual Fund Performance. The Journal of Finance. Volume 52, Issue 1. 18 April 2012. pp. 57-82.
Mossin J. Equilibrium in a Capital Asset Market. Econometrica, Vol. 34, No. 4 (Oct., 1966), pp. 768-783.
Nocera J. Can We Turn Off Our Emotions When Investing? The New York Times. Sept. 29, 2007. Available at: https://www.nytimes.com/2007/09/29/business/29nocera.html
Paulo F. Maio, Santa-Clara P. Short-Term Interest Rates and Stock Market Anomalies. Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. February 7, 2017.
Robert C. Merton. An Intertemporal Capital Asset Pricing Model. Econometrica. Vol. 41, No. 5 (Sep., 1973), pp. 867-887.
Tamura M. 30 years since Japan’s stock market peaked, climb back continues. December 29, 2019. Available at: https://asia.nikkei.com/Spotlight/Datawatch/30-years-since-Japan-s-stock-market-peaked-climb-back-continues
Titman S. K.C. John Wei, Xie F. Capital Investment and Stock Returns. National Bureau of Economic research. 1050 Massachusetts Avenue, Cambridge, MA 02138, September 2003.
Truong, G., Partington, G., Peat, M. Cost-of-capital estimation and capital budgeting practices in Australia. Australian Journal of Management, Volume 33, Issue 1, 2008. pp. 95-121.
Tsuji C. An Investigation of the ICAPM in Japan: Evidence from the Tokyo Stock Exchange with a Review of International and Accounting Research. International Journal of Accounting and Financial Reporting. Vol. 1, No. 1, 2011. pp. 18-28.
William F. Sharpe Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. The Journal of Finance, Volume 19, Issue 3. September 1964.
Internet resources:
Japan Exchange Group. Number of Listed Companies/Shares. Available at: https://www.jpx.co.jp/english/listing/co/index.html
Kenneth R. French’s official site. Available at: https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/index.html
Largest stock exchange operators worldwide as of Mar 2020, by market capitalization of listed companies. Available at: https://www.statista.com/statistics/270126/largest-stock-exchange-operators-by-market-capitalization-of-listed-companies/
The World Bank. World Development Indicators. Available at: http://datatopics.worldbank.org/world-development-indicators/
The Fama-French model. Report for Jemena Gas Networks, ActewAGL, Ergon, Transend, TransGrid, and SA PowerNetworks. Available at: https://www.ergon.com.au/__data/assets/pdf_file/0019/228421/SFG-Report-of-Fama-French.pdf
Yahoo Finance. Available at: https://finance.yahoo.com/quote/%5EN225/history?period1=-157420800&period2=1584748800&interval=1mo&filter=history&frequency=1mo
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