Expalainingthecross-sectionofstockreturnsinJapanFactorsorcharacteristics外文文献.pdf

THE JOURNAL OF FINANCE • VOL. LVI, NO. 2 • APRIL 2001 Explaining the Cross-Section of Stock Returns in Japan: Factors or Characteristics? KENT DANIEL, SHERIDAN TITMAN, and K. C. JOHN WEI* ABSTRACT Japanese stock returns are even more closely related to their book-to-market ratios than are their U.S. counterparts, and thus provide a good setting for testing whether the return premia associated with these characteristics arise because the charac- teristics are proxies for covariance with priced factors. Our tests, which replicate the Daniel and Titman 1997 tests on a Japanese sample, reject the Fama and French 1993 three-factor model, but fail to reject the characteristic model. FINANCIAL ECONOMISTS HAVE EXTENSIVELY STUDIED the cross-sectional determi- nants of U.S. stock returns, and contrary to theoretical predictions, find very little cross-sectional relation between average stock returns and systematic risk measured either by market betas or consumption betas. In contrast, the cross-sectional patterns of stock returns are closely associated with charac- teristics like book-to-market ratios, capitalizations, and stock return momen- tum.1 More recent research on the cross-sectional patterns of stock returns documents size, book-to-market, and momentum in most developed countries. Fama and French 1993, 1996, and 1998 argue that the return premia associated with size and book-to-market are compensation for risk, as de- scribed in a multifactor version of Merton’s 1973 Intertemporal Capital Asset Pricing Model ICAPM or Ross’s 1976 Arbitrage Pricing Theory. They propose a three-factor model in which the factors are spanned by three zero-investment portfolios: Mkt is long