Factors, Characteristics and Endogenous Structural Breaks: Evidence from Japan
36 Pages Posted: 18 Aug 2011
Date Written: August 17, 2011
Abstract
Using an updated Japanese sample covering the 1975-2006 period, we reexamine whether it is Fama and French's (1993) three-factor model or Daniel and Titman's (1997) characteristic model that better explains stock returns in the Japanese market. In contrast to Daniel, Titman, and Wei (2001), we find that the three-factor model works well for this updated sample. Further analysis identifies a structural break date in October 1997, which coincides with the publication date of Daniel and Titman's article. In particular, the characteristic model is supported before 1997, but not after; the Japanese evidence is similar to the U.S. evidence, as documented by Davis, Fama, and French (2000).
Keywords: factor model, characteristic model, structural break, Japanese market
JEL Classification: C13, C22, G12
Suggested Citation: Suggested Citation
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