The impact of party alternative on the stock market: the case of Japan

Abstract

This paper tries to clarify whether change in political regime has an effect on the behaviour of the stock market in Japan. The empirical study finds that the transition of ruling party effect is not a crucial variable to the Nikkei 225. The alienation felt by the Japanese about the political environment, resulting in a succession of prime ministers, does not influence the Nikkei 225 stock market behaviour. Therefore, former prime ministers who have resigned have become scapegoats for the poor performance of financial and economic policies.

Notes

¹ CEO turnover and organization performance has become a topic of broad attention in the literature of management research, but there is no general agreement on this relationship. Empirical studies found that when corporations choose a new CEO with experience of managerial practices, the corporate performance reacted positively to CEO turnover (the common-sense theory: Davidson et al ., 1990; Borokhovich et al ., 1996; Lausten, 2002). Further research found that CEO turnover makes members of the organization nervous, reduces corporate performance, and there is a negative relationship of firm performance to CEO turnover (the vicious cycle theory: Barro and Barro, 1990; Denis and Denis, 1995; Parrino, 1997; Conyon, 1998; Farrell and Whidbee, 2002). Other studies have found corporate performance tends to give no response to CEO turnover, and CEOs are victims of poor corporate performance. Accordingly, corporate performance is independent of CEO turnover (the ritual scapegoating theory: Kaplan, 1994; Kang and Shivdasani, 1995; Nelson, 2005).

² The GARCH (1,1) model was considered sufficiently specific to capture the conditional heteroskedastical variance by Bollerslev (1987), Lamoureux and Lastrapes (1990), Baillie and DeGennaro (1990) and Chuang and Chang (2002).