Working Paper: NBER ID: w7246
Authors: Kent Daniel; Sheridan Titman; K.C. John Wei
Abstract: Japanese stock returns are even more closely related to their book-to-market ratios than are their U.S. counterparts, and thus provide a good setting for testing whether the return premia associated with these characteristics arise because the characteristics are proxies for covariance with priced factors. Our tests, which replicate the Daniel and Titman (1997) tests on a Japanese sample, reject the Fama and French (1993) three-factor model but fails to reject the characteristic model.
Keywords: Stock Returns; Book-to-Market Ratios; Asset Pricing Models
JEL Codes: G1; F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Japanese stock returns (G17) | book-to-market ratios (G32) |
| book-to-market ratios (G32) | expected returns (G17) |
| characteristics (L15) | expected returns (G17) |
| characteristic-balanced portfolios (G11) | average returns (G12) |
| factor-balanced portfolios (G11) | average returns (G12) |
| characteristics and factor sensitivities (C38) | power to discriminate between models (C52) |
| characteristics (L15) | return premia (G19) |
| Fama and French three-factor model rejection (C52) | characteristic model validity (C52) |