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Fundamentals and Stock Returns in Japan

Louis K. C. Chan, Yasushi Hamao and Josef Lakonishok
The Journal of Finance
Vol. 46, No. 5 (Dec., 1991), pp. 1739-1764
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328571
Stable URL: http://www.jstor.org/stable/2328571
Page Count: 26
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Fundamentals and Stock Returns in Japan
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Abstract

This paper relates cross-sectional differences in returns on Japanese stocks to the underlying behavior of four variables: earnings yield, size, book to market ratio, and cash flow yield. Alternative statistical specifications and various estimation methods are applied to a comprehensive, high-quality data set that extends from 1971 to 1988. The sample includes both manufacturing and nonmanufacturing firms, companies from both sections of the Tokyo Stock Exchange, and also delisted securities. Our findings reveal a significant relationship between these variables and expected returns in the Japanese market. Of the four variables considered, the book to market ratio and cash flow yield have the most significant positive impact on expected returns.

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