TY  - JOUR
AU  - French,Kenneth R.
AU  - Poterba,James M.
TI  - Were Japanese Stock Prices Too High?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3290
PY  - 1990
Y2  - March 1990
UR  - http://www.nber.org/papers/w3290
L1  - http://www.nber.org/papers/w3290.pdf
N1  - Author contact info:
Kenneth R. French
85 Trescott Road
Etna, NH 03750
Tel: 603/643-5750
Fax: 603/643-6817
E-Mail: kfrench@dartmouth.edu

James M. Poterba
Department of Economics
MIT, E52-350
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/253-6673
Fax: 617/258-7804
E-Mail: poterba@nber.org
M2  - featured in NBER digest on 1990-09-01
AB  - The difference between reported price-earnings ratios in the United States and Japan is not as puzzling as it appears at first glance. Nearly half the disparity is caused by differences in accounting practices with respect to consolidation of earnings from subsidiaries and depreciation of fixed assets. If Japanese firms used U.S. accounting rules, we estimate that the P/E ratio for the Tokyo Stock Exchange would have been 32.1, not the reported 54.3, at the end of 1988. Accounting differences are unable, however, to explain the sharp rise in the Japanese stock market during the mid-1980s. Changes in required returns on equities, or in investor expectations of future growth for Japanese firms, must be invoked to explain this phenomenon. Real interest rates declined during the period of rapid price increase, but there is little evidence that growth expectations became more optimistic. The real interest rate changes do not, however, appear large enough to fully account for the change in stock prices.
ER  -