When the Japanese Stock Market Meets COVID-19: Impact of Ownership, China and US Exposure, and ESG Channels

Abstract

We identify factors affecting the Japanese stock market during the COVID-19 pandemic period. First, we focus on the ownership structure. We find that indirect ownership through the exchange-traded fund purchasing program by the Bank of Japan has a positive impact on abnormal returns. Foreign ownership is negatively associated with abnormal returns, whereas ownership by traditional business groups is positively associated with abnormal returns. Second, we examine the impact of global value chains and find that stock returns are lower for companies with China and U.S. exposure. Third, in terms of environmental, social, and governance (ESG) engagement, there is no evidence that firms that have highly rated ESG scores have higher abnormal returns, but firms with ESG funds outperform those without.

Keywords: COVID-19; Japanese stock market; Bank of Japan (BOJ); Foreign ownership; Business groups; ESG; Global value chain

JEL Classification: G30