On the test of the globalization of the Japanese equity market under the Kreps-Porteus preference

This paper analyzes empirically the globalization of the Japanese equity market, based on the Kreps-Porteus preference model developed by Epstein (1988) and Epstein and Zin (1990, 1991). Empirical results show that the model performs well. The results are robust to the choice of the combination of assets and instruments. An earlier version of this paper was read at the 1994 annual meeting of the Japanese Association of Financial Econometrics and Engineering held at Tsukuba University. The author would like to give thanks to the participants. He also expresses his gratitude to the editor T. Kariya, two anonymous referees and R. Parry for their helpful comments. This research is partly supported by a grant in aid from the Postal Life Insurance Foundation of Japan.