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Article: Production-based asset pricing in Japan

TitleProduction-based asset pricing in Japan
Authors
Issue Date1995
Citation
Pacific-Basin Finance Journal, 1995, v. 3, n. 2-3, p. 217-240 How to Cite?
AbstractThis paper develops and tests, using data from Japan, a discrete-time production-based asset pricing model. We derive an Euler equation that jointly characterizes the firm's optimal investment policy and investment returns with a stochastic discount factor. When firms can choose between financial investments on the stock market and real investments in production processes, stock market returns must be linked to real investment returns. Hence, stock price behavior should be related to the ultimate sources of business cycle risk such as technology shocks and adjustment costs, as production investments are. Based on the stock market and investment data from Japan and using the generalized method of moments, we find supportive evidence for the production-based asset pricing model. Specifically, Japanese stock returns and investment returns are forecastible from the same set of information variables, and a single latent variable model representation for investment returns and stock market returns is not rejected. However, forecasts of future real activity are more accurate using stock market data than using investment returns. © 1995.
Persistent Identifierhttp://hdl.handle.net/10722/212654
ISSN
2015 Impact Factor: 0.938
2015 SCImago Journal Rankings: 0.541

 

DC FieldValueLanguage
dc.contributor.authorBakshi, Gurdip S.-
dc.contributor.authorChen, Zhiwu-
dc.contributor.authorNaka, Atsuyuki-
dc.date.accessioned2015-07-28T04:04:35Z-
dc.date.available2015-07-28T04:04:35Z-
dc.date.issued1995-
dc.identifier.citationPacific-Basin Finance Journal, 1995, v. 3, n. 2-3, p. 217-240-
dc.identifier.issn0927-538X-
dc.identifier.urihttp://hdl.handle.net/10722/212654-
dc.description.abstractThis paper develops and tests, using data from Japan, a discrete-time production-based asset pricing model. We derive an Euler equation that jointly characterizes the firm's optimal investment policy and investment returns with a stochastic discount factor. When firms can choose between financial investments on the stock market and real investments in production processes, stock market returns must be linked to real investment returns. Hence, stock price behavior should be related to the ultimate sources of business cycle risk such as technology shocks and adjustment costs, as production investments are. Based on the stock market and investment data from Japan and using the generalized method of moments, we find supportive evidence for the production-based asset pricing model. Specifically, Japanese stock returns and investment returns are forecastible from the same set of information variables, and a single latent variable model representation for investment returns and stock market returns is not rejected. However, forecasts of future real activity are more accurate using stock market data than using investment returns. © 1995.-
dc.languageeng-
dc.relation.ispartofPacific-Basin Finance Journal-
dc.titleProduction-based asset pricing in Japan-
dc.typeArticle-
dc.description.natureLink_to_subscribed_fulltext-
dc.identifier.doi10.1016/0927-538X(95)00007-8-
dc.identifier.scopuseid_2-s2.0-0000162805-
dc.identifier.volume3-
dc.identifier.issue2-3-
dc.identifier.spage217-
dc.identifier.epage240-

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