The sensitivity of Japanese bank stock returns to economic factors: An examination of asset/liability differences and main bank status

The sensitivity of Japanese bank stock returns to market return innovations (shocks), innovations in Japanese government bond returns, trade-weighted yen exchange rate return innovations, and interest rate spread changes are examined. Japanese bank stock returns are found to be significantly and usually negatively related to long-term interest rate innovations in 34% of all regressions. Market β's are found to be always highly significant, while few of the exchange rate return β's and spread β's are significant. Cross-sectional differences in the market and bond return β's are examined. Japanese main banks are generally found to assume more risk, based on market β's.