Behavioral Biases and Incentive Structure of Japanese Institutional Investors investigated relation of both explicit and implicit incentives with behavioral biases based upon the survey data of questionnaire conducted in 2005 and 2003. Longer working and research hours a week mitigates the fund managers' behavioral biases. However, we did not find the fact which indicates the Japanese fund management companies have appropriate internal incentive structure for fund managers.
Risk Consistency and Professional Fund Managers` Investment Behavior : Questionnaire-based Analysis on Japanese Market investigated risk consistency, herding behavior and disposition effect in Japanese fund managers. They found that 'risk inconsistent' fund managers have a tendency to show disposition behavior.
More Evidence of Home Bias used field surveys to show that Japanese institutional investors held relatively optimistic views for their domestic stock market than for the foreign stock market. Their one-year expected returns for the Nikkei Stock Average were on average much higher than those for the Dow Jones Industrial Average. Such home bias seems to be consistent with a cognitive bias hypothesis. Older and more experienced investors tended to show stronger home bias in the 2005 survey.
When does a noise trader affects stock prices? An experimental study creates laboratory stock market in which informed traders and noise traders co-exist. Their laboratory results suggest that stock prices are vulnerable to noisy information in the financial market.
Index Fund and Liquidity : Empirical and Experimental Examination examines the pattern of pricing before/after two important changes of the passive investment guideline and the timing of benchmark index revisions. The changes affect a behavior of hedge fund who provides liquidity at the events. An experimental study shows that profitability of hedged fund strategy is reduced after an index fund behavior becomes less predictable, market liquidity is lowered and it results in higher cost of rebalancing for index funds.

In analyzing option prices, it is very important to use data with exactly the same time-stamps. Daily data, of closing prices with unknown time when the closing transactions were done, don't guarantee such simultaneousness. This research utilizes tick-by-tick data for Nikkei 225 put and call options from January 2000 to December 2000. They are records of price, volume, bid, ask, and time of each transactions, that make us to keep the simultaneousness. We investigate volatility smile, which is a nonlinear relationship between moneyness (= a ratio of an exercise price to a price of the underlying asset of the option) and the implied volatility (IV), those documented in previous studies using daily data.We found that (1)IV's from daily data don't necessarily coincide with ones from tick data, (2)IV's are affected whether the transaction occurred at the ask side or the bid side, (3)After adjusting these, we still observe volatility smile, and (4)a large IV which is far off from the fitted smile curve occurs with deep-in-the-money options of a small volume, whose price sensitivity to the volatility of the underlying securities is small.These findings are consistent with the following theoretical predictions ; (a)effects of a change in the volatility on the option price are greatest for near-the-money (NTM) options, and trading volumes are highest for NTM options, (b)NTM options need relatively large adjustments when the volatility changes, and therefore prices for NTM options should be compensated for transactions costs that the NTM options would incur, (c)option trading is motivated by differences of opinions among traders, on the value of volatilities, which can not be observed directly but must be inferred from option prices

In this research project, we have totally investigated the methodologies for measurement and modeling of various credit risks in finance theory and their applications, and we have obtained, a lot of academically interesting and/or practically useful results

We study the roles of securities houses in the Tokyo Stock Exchange (TSE) as a market maker who provides liquidity to the market. Although there is no designated market maker in the TSE, securities houses interfere with transactions through buying and selling on their own account in order to earn profit. With tick-by-tick data that record all transactions and the changes in the limit order book, we capture the cost of such profit-oriented, liquidity providing activities.The TSE is a pure order-driven market. Executions are carried out by matching limit orders with incoming market orders. The former type of orders is ones that have been placed on the book with a designated limit price, but they have any guarantee for execution. The latter type has no specified execution price, but will be executed immediately if there are limit orders waiting. When investors choose a type of an order, they weigh the price gain versus the possible loss of trading opportunity. We estimate execution probabilities of limit orders to find evidences that traders well understand the implications of the factors of limit orders that affect the priorities for their execution. We present the results at an international conference (Omura, Tanigawa, and Uno [2001]), and published as a chapter in a book (Uno et al.[2002]). The relationships between market liquidity and characteristics of market microstructure are surveyed in Tanigawa [2002].Lunchtime basket trades deserve special investigation, for securities houses always interfere to provide market liquidity. We examined the competition in the lunchtime auction and the following transactions for the stocks traded at the auction, to find liquidities on the TSE floor are the most important factor for aggressiveness of the securities houses. After presenting this result at an academic conference, we are now in the process of preparation for submission with revised results

After the demolition of obligatory trades at the designated exchanges in December 1998, traders became to use other places for securities trading than the floor at the Tokyo Stock Exchange, such as off-the-hour trades at the TSE and off-the-exchange trades. This is primarily because of the regulatory change that made it possible to provide alternative places to trade, but it is evidence that many agents started to search the way to utilize this opportunity. A competition for trading places began. I summarized welfare implications of this movement in "Competition among exchanges as a place for trade and its welfare implications, " in Investment 2000.The TSE is a purely order-driven market, where the only source of the liquidity is the limit orders on the book. When a trader chooses a type of orders, either market or limit, she compares price gain the limit order provides with a possibility that it might not be executed within a day. With preliminary tick-by-tick data of December 1998, I estimated the execution probabilities of limit orders, and reported the results in a discussion paper, "Execution Probabilities of Limit Orders."Most of traded financial securities are those issued by corporations. Holders are entitled to have some rights to control the firm, as well as some claims in cash flows of it. It is a concern of market participants what kind of securities corporate managers decide to circulate publicly, and what kinds of services financial intermediaries provide. I review these points in the fifth chapter "Corporate Governance" of the book, Advances in Financial Analysis 2000, and in an article "Recent Development of Theories of Firms, " published in Gendai Fainansu 1999. These are necessary ingredients to study how a trading place is supplied, because this determines the characteristics of the securities traded

Our empirical studies on convertible bonds (CB) that the Japanese firms have issued inside and outside Japan from 1985 to 1995 have found the followings :a) CB's looked as an American Option, have been voluntary exercised even when it didn't seem to be optimal for investors,b) Identities (their reason) for exercises are (i) large institutional investors and/or securities houses (to avoid price changes that their large transactions would cause), and (ii) securities houses (to appropriately control CB inventories providing necessary liquidity to the market as market markters, and as current or future syndicate leaders in issuing markets). Their different motives for conversions than individual investors may explain the puzzle a).c) The first conversion occurs while trading volume is large and prices of CB are mostly higher than its parity value. Subsequent conversions follow when trading volumes are low and CB prices are near its parity value. This suggests that identities and their reasons for conversion between these two cases are different.d) In primary markets, the conditions of issues such as coupon rates and conversion prices have been rather inflexible, and quota occurred to equate supply with demand. Due to this inflexibility of a adjusting effective price of an issue, and to a rule requiring an issue must be distributed among large numbers of investors, we observe high trading volumes during one to two years after the issue, but quickly decreases thereafter.e) Not only in the late 1980's but also in recent year, CB prices seem to be too low compared with its stock prices, as if there had been riskless arbitrage opportunities. However, it depends on costs for short selling of stocks, especially possible payments of maintenance margin, whether there were actually riskless arbitrage opportunities or not

Stylized facts of corporate finance in the postwar Japan are interpreted and analyzed in a model of multi-lateral principal agent problem, wherein managers finance the project by issuing stocks as well as borrowing money from banks. We show that, in a two period model, the following features arise as the equilibrium with longterm commitments by banks and stockholders: (1) share holdings by banks to optimally choose the reward schedule for the manager, (2) delegation of minitoring as well as intervening functions against the management to the bank, and (3) dismissal of the manager as a discipline device which dominates the bankruptcy option. These features are in broad accordance with the stylized facts of the Japanese economy from 1950 through mid-1970s

Nishina has investigated the theoretical structure of credit risk analysis by reexamination of existing models. Along with the theoretical approach, he has explored the mechanism of bond rating as a typical application of credit risk analysis. Recognizing the strong necessity of improvement in risk models, he expects a potential power or factor structure approach in the determination of bond prices.Tabata investigated the topics on index funds and their properties in the framework of an investment decision making problem under uncertainty. The efficient genetic algorithm to design the index fund is developed and the new procedure to revise parameters included in the algorithm is suggested from the view point of a Bayesian approach when the stock prices are available sequentially.Ohnishi mainly examined an optimal stopping problem for a geometric Brownian motion with Poissonian jumps. Although it has been argued that so called smooth pasting technique (see Dixit (1993), and Dixit and Pindyck (1994)) is useful for such stochastic optimization problems, it seems that its mathematical validity is not sufficiently discussed so far. In this project, by taking a martingale approach, he showed that it is indeed mathematically valid under a set of some mild conditions on the parameters of the problem.Tanigawa (2000a) considered implications of defaults on the ex-post moral hazard problem of corporate managers, noting that different types of debt contracts place different disciplinary burdens on the managers. Tanigawa and Koie (1999) studied exercises of corporate convertible bonds may be attributed to investors' liquidity demand, which is typical in the case of financial difficulties. Securities transaction itself involves risk of not executed. Omura, Uno, and Tanigawa (2000) estimated execution probabilities of limit orders of stock in the Tokyo Stock Exchange, to see how large such execution risk is incurred in limit orders with a more favorable price the limit order provides.The data that is available at financial market is not an ideal one. The data is supposed to be well-behaved by theories established at fields of statistical and mathematical finance, In this project, Oya has derived some properties of statistics with missing data and without any information about missing data. It is reported that the usual statistics for panel data analysis have an upward bias in the case mentioned above

　消費財の取引では売り手(生産者)と買い手(消費者)が予め決まっているが，証券取引ではある価格が証券の価値に比べて高すぎると考えた人が売り手となり，低すぎると考えた人が買い手となる。「高すぎる」か「低すぎる」かの判断の差は，(潜在的な)市場参加者間に何らかの違い－例えば，アクセスできる情報内容が違うなど－があって初めてもたらされる。証券市場における流動性は，「買い手」や「売り手」ばかりに偏ることなく，どちらのサイドも，相応の「数量」の取引を望むということによって提供されている。市場参加者間の相違に基づくこうした流動性の説明では，取引が成立し約定価格が市場に知られるということ自体が市場参加者にとって新たな情報源となり，もし何らかの理由によって「間違った」約定価格がつくと，そのことに市場参加者が反応して，大きな注文の流入をよびおこすことがありえる。反対に，そうした「変な」価格に対しては，市場参加者が用心してスプレッドを広げて様子を見るなど，流動性を低める行動に出る可能性もある。　どちらがおこるかを明らかにするため，大阪大学の西條教授を主査とする証券の裁定取引に関する経済実験の一部として，(１)株式の本源的価値である「配当」について正しい値を知っている主体と，ノイズがのった値を知らされた主体とが混在する状況を作り出し，(２)正しい値を知っている主体だけが取引に参加する期間，ノイズがのった値を知らされた主体だけが取引に参加する期間，両方の主体が取引に参加する期間を設定の上，(３)各期間内で何度も約定が成立しうる「ザラバ取引」の場合と，各期間一度だけ約定が成立する「板寄せ取引」の場合とについて，経済実験を行ったところ，次のような結果を得た。ザラバ取引では実験参加者の勘違いなどにより「間違った」価格がつくとそれに引っ張られた約定が起こる傾向があるが，板寄せ取引では理論が予測する「正しい価格」でほぼ約定し，ノイズがあることにより流動性が膨らむということがなかった。