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Stock Index Autocorrelation and Cross-autocorrelations of Size-sorted Portfolios in the Japanese Market

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  • Iwaisako, Tokuo
  • 祝迫, 得夫
  • イワイサコ, トクオ

Abstract

Following Lo and MacKinlay's work on the U.S. market (1988, 1990), this paper investigates the autocorrelation of the market index and the cross-autocorrelations of size-sorted portfolios in the Japanese market. The structure of the cross-autocorrelations in the Japanese market is very similar to that of the U.S. in the sense that there are lead-lag relations running from larger stocks to smaller stocks, which will create positive autocorrelation in the market index. Although we have found no autocorrelation in the popular Japanese TOPIX market index, it is because TOPIX puts much more weight on larger stocks compared to the CRSP index for the U.S. market. However, such a cross-autocorrelation structure disappeared during the latter half of the 1990s, as the largest stocks in the Japanese market began to exhibit negative autocorrelation. The possibility of a serious financial crisis during this period provides an explanation for negative autocorrelation. Some empirical evidence is provided for this explanation.

Suggested Citation

  • Iwaisako, Tokuo & 祝迫, 得夫 & イワイサコ, トクオ, 2004. "Stock Index Autocorrelation and Cross-autocorrelations of Size-sorted Portfolios in the Japanese Market," Discussion Paper Series a448, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hituec:a448
    Note: Bibliography: p. 16-17
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    Cited by:

    1. Mejra Festić & Sebastijan Repina & Alenka Kavkler, 2009. "The Up-Coming Crisis and the Banking Sector in the Baltic States," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(III), pages 269-291, September.
    2. Mejra Festić & Sebastijan Repina & Alenka Kavkler, 2009. "The overheating of five EU new member states and cyclicality of systemic risk in the banking sector," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(3), pages 219-232, May.
    3. Anita Radman Peša & Mejra Festić, 2012. "Testing the "EU Announcement Effect" on Stock Market Indices and Macroeconomic Variables in Croatia Between 2000 and 2010," Prague Economic Papers, Prague University of Economics and Business, vol. 2012(4), pages 450-469.
    4. repec:prg:jnlpep:v:2013:y:2013:i:4:id:434:p:450-469 is not listed on IDEAS

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