Tail risk and return predictability for the Japanese equity market

Torben G. Andersen*, Viktor Todorov, Masato Ubukata

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Scopus citations


This paper studies the predictability of the Japanese equity market, focusing on the forecasting power of nonparametric volatility and tail risk measures obtained from options data on the S&P 500 and Nikkei 225 market indices. The Japanese market is notoriously difficult to forecast using standard predictive indicators. We confirm that country-specific regressions for Japan – contrary to existing evidence for other national equity indices – produce insignificant predictability patterns. However, we also find that the U.S. option-implied tail risk measure provides significant forecast power both for the dollar–yen exchange rate and the Japanese excess returns, especially when measured in U.S. dollars. Thus, the dollar-denominated Japanese returns are, in fact, predictable through the identical mechanism as for other equity market indices, suggesting a high degree of global integration for the Japanese financial market.

Original languageEnglish (US)
Pages (from-to)344-363
Number of pages20
JournalJournal of Econometrics
Issue number1
StatePublished - May 2021
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics


Dive into the research topics of 'Tail risk and return predictability for the Japanese equity market'. Together they form a unique fingerprint.

Cite this