International transmissions in US-Japanese stock markets

Abstract

By using the time series of US and Japanese equity indexes, this article finds that the contemporaneous transmission from the US to Japanese equities markets is a significant 0.1387, while from Japan to the US it is 0.0165 and is not significant. This means that a 1% increase in the US market is estimated to have a positive 13 basis point increase on the Japanese market. The estimated results obtained in this article imply that Japanese investors react to US information significantly but US investors do not react to Japanese information significantly. To obtain these results, we identified a structural vector autoregression using identification through heteroscedasticity introduced by Rigobon (2003a). This article contributes to the literature by estimating and testing the previously inestimable contemporaneous US to Japanese market transmissions.

Acknowledgements

The author thanks Professors Yuzo Honda, Yoshiro Tsutsui, Kosuke Oya and Charles Yuji Horioka at Osaka University. The opinions of participants at the Honda Seminar at Osaka University are greatly appreciated. Encouragement from Associate Professor Wako Watanabe of Tohoku University has been a strong motivation. Knowledge of the people at Bloomberg Tokyo has given the author a great advantage in analysing financial markets.