Ticker board of Tokyo stock exchange by Stéfan on Flickr.

Predicting Japanese stocks

01 June 2015

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Tatsuyoshi Okimoto is Associate Professor of Finance at Crawford School of Public Policy, editor of Gendai Finance, and deputy director for the Australia-Japan Research Centre.

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Does the Japanese stock market — one of the largest in the world — respond differently to news than other major stock exchanges? And how can the news be used to better predict changes in Japan’s stock market?

Associate Professor Tatsuyoshi Okimoto has been awarded the 2014 Securities Analysts Journal Prize for his paper on predicting the Japanese stock market using a news index. The paper was co-authored with Eiji Hirasawa at the Financial Technology Research Institute in Japan. The Securities Analysts Journal is the official monthly journal of the Securities Analysts Association of Japan and since 1989 the best articles each year are awarded the prestigious Securities Analysts Journal Prizes.

“My co-author and I are honoured to receive the prize,” said Okimoto, who is the Research Director of the Australia-Japan Research Centre at Crawford School of Public Policy.

“We may find a way to become rich from this but for now we hope to contribute to the tools and methods of understanding how financial markets respond to news and events.”

In their paper, they constructed a news index based on the Nikkei QUICK news service and examined whether it could help to predict movements on the Japanese stock market. They demonstrate that as the proportion of positive news becomes higher, the stock market performs relatively better: there is larger trading volume the next day without any rebounds over the following couple of days.

This is in marked contrast to a previous study examining the US market, using the market sentiment index constructed from the Wall Street Journal column, that showed a significant rebound. Using Big Data to predict financial markets has become increasingly popular.

“We all want to better understand how financial markets work,” says Okimoto, “but there is added significance here with so much attention being paid to the Japanese stock market as a barometer of the health of the Japanese economy.”

With the Japanese economy showing signs of growth after two decades of mediocre growth, many policymakers and analysts are watching the stock market closely. Their paper is a pioneering work for Japanese stock markets with significant implications for this relatively new area of research.

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