Market Evaluations of Banking Fragility in Japan: Japan Premium, Stock Prices, and Credit Derivatives

47 Pages Posted: 28 Mar 2003 Last revised: 15 Sep 2022

See all articles by Takatoshi Ito

Takatoshi Ito

University of Tokyo - Faculty of Economics; National Bureau of Economic Research (NBER); Ministry of Finance, Tokyo

Kimie Harada

Chuo University - Faculty of Commerce; Chuo University - Graduate School of International Accounting

Date Written: March 2003

Abstract

This paper investigates movements of market indicators of banking fragility, namely, Japan premium, stock prices, and credit derivative spreads of Japanese banks. Although the Japan premium in the euro-dollar market seemed to have virtually disappeared since April 1999, credit and default risks of Japanese banks has not necessarily disappeared. Other indicators show varying degrees of fragility among Japanese banks in 1998-2001. Banking stock prices continue to slide compared to the market-wide stock price index. From pricing of credit derivatives, default probabilitie of banks can be etracted. Correlations among indicators were high both in the first period and in the second period; Credit default swap (CDS) premium explains Japan premium with a significant, positive coefficient. The higher the CDS is, lower go the stock prices. Before the capital injection of 1999, the markets were more sensitive to bank vulnerability and higher premiums were required

Suggested Citation

Ito, Takatoshi and Harada, Kimie, Market Evaluations of Banking Fragility in Japan: Japan Premium, Stock Prices, and Credit Derivatives (March 2003). NBER Working Paper No. w9589, Available at SSRN: https://ssrn.com/abstract=391125

Takatoshi Ito (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
81-425-80-8356 (Phone)
81-425-80-8333 (Fax)

Ministry of Finance, Tokyo ( email )

3-1-1, Kasumigaseki, Chiyoda-ku
100-8940 Tokyo
Japan
+81-3-3581-4720 (Phone)
+81-3-5251-2144 (Fax)

Kimie Harada

Chuo University - Faculty of Commerce ( email )

742-1, Higashinakano
Hacihoji
Tokyo, 192-0393
Japan

Chuo University - Graduate School of International Accounting ( email )

42-8, Ichigaya-Motomuacho
Shinjuku-ku
Tokyo 162-8473
Japan

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
80
Abstract Views
1,409
Rank
551,205
PlumX Metrics