Marc Bremer

Predictable patterns after large stock price changes on the Tokyo Stock Exchange

This paper extends to Japanese stocks recent research on short-term stock price adjustment to new information. Using standard methodologies, we find that stock returns of firms included in the Nikkei 300 tend to be significantly positive after large price decreases. This is similar to the pattern observed for American stocks in other research. The pattern remains when returns are adjusted for market movements, and exists independently of the October 1987 market break. We find little evidence of significant patterns following large stock price increases. We also find little evidence that non-transaction prices explain the persistent, significant returns observed following large price decreases on the Tokyo Stock Exchange. We conjecture that broker/dealers and TSE member firms respond to large price decreases not by trading for their own profit, but rather by selectively supplying liquidity to their preferred retail customers. We conclude that ordinary investors probably cannot earn economic profits from these statistically significant patterns.

Trading Volume for Winners and Losers on the Tokyo Stock Exchange

This paper examines trading volume on the Tokyo Stock Exchange. Traditional theory suggests that taxes create strong incentives to delay realization of capital gains and accelerate realization of losses. Contrary to the theory, we find strong evidence that turnover is higher for stocks with gains (winners) than for stocks with losses (losers). In particular, the winner stocks of keiretsu firms tend to have high end-of-fiscal-year turnover. This is true even when realizing gains could result in higher tax liabilities. We conclude that capital gains taxes have only a small impact on turnover in Japan. Other non-tax-related motives, especially window dressing, appear to dominate investor behavior. We find strong evidence that this window dressing is concentrated in the stock of keiretsu firms.

Information and the market's perceptions of Japanese bank risk: Regulation, environment, and disclosure

Abstract As Japanese asset prices declined in the post-bubble period, bank risk increased substantially. Yet, bank regulators suppressed individual bank information and practiced systemic forbearance in a convoy policy that protected weak banks. Was there sufficient information available to investors that allowed the market for bank stocks to reflect different risk levels, even though regulators tightly controlled the information and even engaged in disinformation? This research examines the prices of the stock of banks that were subsequently downgraded by Moodys Investors Services during the 1986–1998 period. We find that the market does impose a significant penalty before as well as at the time of downgrades in creditworthiness by Moodys. Share prices adjust to changing levels of risk. Thus, there is evidence of sufficient information for investors to discriminate among banks with different levels of risk.

Does the Japanese stock market react differently to public security offering announcements than the US stock market

Abstract We examine the equity valuation effects of common stock, straight debt, warrant bond and convertible bond offerings by Japanese firms during the period 1984–1991. We find that Japanese stock market reactions to announcements of common stock, straight debt and warrant bond offerings are quite similar to those of the US market. The only inconsistency is in convertible bond offerings where we find insignificant abnormal returns. Our results provide some evidence that the underlying financial factors in both countries may be similar and strong enough to overcome the effect of environmental and institutional differences.