A paper written by Matthew Poggi (Mansfield Fellow 2009-2011, U.S. Department of Treasury) and his colleagues at the Bank of Japan during his summer 2011 placement has been published by the central bank. A link to the paper can be found here.
According to previous research, the longer a business is in operation, the less likely the price of its stock will increase substantially. As a business grows, it gains confidence from management know-how and outside organizations/agencies and as management becomes more stable, the volatility of its stock prices declines. Therefore, a negative correlation should exist between both the length of time a business is in operation and the rate of increase of its stock prices, and between the length of time a business is in operation and the volatility of its stock. With this in mind, as one looks at the Nikkei 225 and S&P 500 from 2000 onwards one can observe that in both Japan and the U.S. the longer a business is in operation, the lower its stock’s volatility becomes. However, in the U.S. the rate of increase in a business’s stock price decreases the longer it is in operation, while in Japan this rate increases the longer a business is in operation. Taking into account the fact that in the U.S. some start-up companies have remarkably high rates of stock price rise, which serves to push up the stock price index as a whole, one can then conclude that one of the primary factors of the Nikkei 225’s relative slump is the low presence of start-up companies in Japan.