I appreciate helpful comments and suggestions from the Issue Editor, Sheridan Titman, K.C. John Wei (discussant and referee), Sudipto Dasgupta, Maximilian Groß, Christoph Jäckel, Christoph Kaserer, Daniel Kent, Soohun Kim, Maximilian Overkott, Akiko Watanabe, Masahiro Watanabe, and seminar participants at the IRF Conference on Japanese Financial Markets in Tokyo and the 21st Annual Conference on Pacific Basin Finance, Economics, Accounting, and Management in Melbourne. The author gratefully acknowledges the support of the TUM Graduate School's Faculty Graduate Center TUM School of Management at the Technische Universität München.
Is Japan Different? Evidence on Momentum and Market Dynamics†
Article first published online: 20 MAR 2014
© 2014 International Review of Finance Ltd. 2014
International Review of Finance
Special Issue: Japanese Financial Markets: Corporate Finance, Institutions, and Investments
Volume 14, Issue 1, pages 141–160, March 2014
How to Cite
Hanauer, M. (2014), Is Japan Different? Evidence on Momentum and Market Dynamics. International Review of Finance, 14: 141–160. doi: 10.1111/irfi.12024
- Issue published online: 20 MAR 2014
- Article first published online: 20 MAR 2014
- TUM Graduate School's Faculty Graduate Center TUM School of Management at the Technische Universität München
Recent evidence for the US indicates that momentum profits are conditional on market dynamics. This paper documents that the following finding holds for the Japanese market as well: momentum returns are significantly higher when the market stays in the same condition than when it transitions to the other state. This evidence is consistent with the behavioral model of Daniel et al. (1998, Journal of Finance 53(6), 1839–1885.). Furthermore, market transitions occurred more frequently in Japan compared to the US. These results explain why average momentum returns have historically been low in Japan, a fact generally referred to as an empirical failure of momentum. Overall, my findings indicate that different market dynamics, and not different momentum, cause the overall low momentum returns in Japan.