What drives stock returns in Japan?

  • Samuel Xin LiangEmail author


We investigate systematic factors driving stock returns and stock return predictability in Japan. We find that dividend yield, cash-flow yield, and industrial production are systematic pricing factors after controlling for market, value, and size, while other macroeconomic factors are not. Value and size premiums become insignificant after adding the industrial production factor to market, value, and size factors because the value factor captures the changing fundamentals of Japan’s macroeconomic development. For predicting stock returns, our tests using Fama and MacBeth’s (J Political Econ 71:607–636, 1973) regressions accept the models of both factor and characteristics for a stock’s cash-flow yield, and a characteristics model for a stock’s short-term reversal, dividend yield, and earnings yield.


Systematic risk factor Industrial production Dividend yield Cash-flow yield Return predictability 

JEL Classification

G11 G12 G15 



We thank Editor Markus Schmid and the anonymous referee for their constructive comments and suggestions. We also thank Nusret Cakici, Kalok Chan, Nai-Fu Chen, Allaudeen Hameed, Raymond Kan, Mark Seasholes, Sheridan Titman, Kevin Q. Wang, K.C. John Wei, and Chu Zhang for their helpful comments and discussions. We also thank Man Yin Cheuk for her excellent research assistance. Normal disclaimers apply.


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Copyright information

© Swiss Society for Financial Market Research 2019

Authors and Affiliations

  1. 1.Tyndale University College and SeminaryTorontoCanada

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