The Joint Dynamics of Stock and Bond Risk-Returns in Japan

Changmin Lee and Hyoung-Goo Kang

We examine the joint dynamics of stocks and bonds in the Japanese

 market by computing the prices of risks and their relationship in stock

 and bond factors. We deconstruct market factors into industry factors and

incorporate bond factors such as the level, slope, and curvature of yield curves.

This paper contributes to the literature by identifying the risk-return relationship in

 Japanese financial market and explaining the cross-sectional variations

 of stock returns in consideration of the bond market, and illustrating the importance

 of macro information in stock returns. Our approach and results provide practical

 implications to hedge fund managers,

mutual fund managers, and basket traders.