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Application of the q-factor Model to the Japanese Share Market

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  • Brooke Alexandra Maeda

Abstract

This paper tests the performance of the q-factor model proposed by Hou et al. (2015) to the Japanese share market. It examines ten years of monthly data for shares listed on both the First section and Second section of the Tokyo Stock Exchange. The results suggest that the q-factor model does not adequately explain returns for shares listed on the Tokyo Stock Exchange. For comparison purposes the data sample is applied to the Fama French three-factor model. The results of this analysis suggest that the Fama French three-factor model is more appropriate for the Japanese share market, and it provides evidence of a strong value premium. The factor which correlates to the value factor in the q-factor model was not significant, providing stronger support against the q-factor model as an adequate asset pricing model for Japan.

Suggested Citation

  • Brooke Alexandra Maeda, 2017. "Application of the q-factor Model to the Japanese Share Market," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(6), pages 15-22, June.
    • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:6:p:15-22
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    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. Yonezawa, Yasuhiro & Hin, Tio Kia, 1992. "An empirical test of the CAPM on the stocks listed on the Tokyo stock exchange," Japan and the World Economy, Elsevier, vol. 4(2), pages 145-161, September.
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    More about this item

    Keywords

    share returns; asset pricing;

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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