TEPCO’s (Tokyo Electric Power Co Holdings) Stock Behaviour in the Long Run


  • Sophie Nivoix Faculty of Law and Social Sciences, Poitiers University
  • Serge Rey Université de Pau et des Pays de l’Adour, Pau




Stock market, Japan, Risk, Volatility, Earthquake, Electric utility companies, Regime-switching model, MS-VAR model


Noting the huge impact of the Fukushima accident on TEPCO’s  (Tokyo Electric Power Co Holdings) activity and stock price, this study investigates the long-run patterns of returns and volatility of its stock, relative to the main return and volatility features of the Nikkei 225 over the past 30 years. The best fitting volatility for both series comes from an asymmetric power GARCH model; the standard deviation of volatility does not depend primarily on large innovations. For the Nikkei, large negative changes are not more clustered than positive changes. A regime-switching correlation model with three states reveals that a high correlation regime is the most frequent for TEPCO, with low switching probability, whereas the regime associated with the Fukushima crisis is less persistent. A strong interaction arises between the less common regimes, but the stable, low volatility regime appears mostly independent. In two regimes, the Nikkei returns have significant and negative effects on TEPCO returns, but the reverse is not true. The Fukushima environmental and industrial crisis thus could spark a new energetic era in Japan, including a real transition toward more environmentally friendly electric power.


Billio M, Caporin M (2005) Multivariate Markov switching dynamic conditional correlation GARCH representations for contagion analysis, Statistical Methods and Applications, 14, 145-161.

Bollerslev T (1986) Generalized autoregressive conditional heteroskedasticity, Journal of Econometrics 31, 307-327.

Bollerslev T (2008) Glossary to ARCH (GARCH), CREATES Research paper N° 2008-49, University of Copenhagen.

Boudt K, Daníelsson J, Koopman SJ, Lucas A (2012) Regime switches in the volatility and correlation of financial institutions, National Bank of Belgium, Working paper N°227.

Cont R (2001) Empirical properties of asset returns: stylized facts and statistical issues, Quantitative Finance, 1, 223-236.

Ding Z, Granger CWJ , Engle RF (1993) A long memory property of stock market returns and a new model, Journal of Empirical Finance, 1, 83-106.

Engle RF (1982) Autoregressive conditional heteroskedasticity with estimates of the variance of United Kingdom inflation, Econometrica, 50, 987-1007.

Engle RF (1984) Wald, likelihood ratio and Lagrange multiplier tests in econometrics, in Handbook of Econometrics, Volume 2, Z. Griliches and MD. Intriligator (eds.), Elsevier.

Gallo GM, Otranto E (2013) Volatility swings in the US financial markets, in Complex Models and Computational Methods in Statistics, M Grigoletto, F ‎Lisi, and S Petrone (eds.), Springer, 137-148.

Glosten LR, Jagannathan R, Runkle D (1993) On the relation between the expected value and the volatility of the nominal excess return on stocks, Journal of Finance, 48, 1779-1801.

Günay S (2015) Markov regime switching generalized autoregressive conditional heteroskedastic model and volatility modeling for oil returns, International Journal of Energy Economics and Policy, 5(4), 979-985.

Hamilton JD (1989) A new approach to the economic analysis of nonstationary time series and the business cycle, Econometrica, 57, 357–384.

Higgins ML, Bera AK (1992) A class of nonlinear ARCH models, International Economic Review, 33, 137-158. Jaussaud J, Nivoix S, Rey S (2015) The Great East Japan Earthquake and stock price, Economic Bulletin, 35-2, 1237-1261.

Krolzig HM (1997) Markov-Switching Vector Autoregressions, Lecture Notes in Economics and Mathematical Systems, Springer.

Marcucci J (2005) Forecasting stock market volatility with regime-switching GARCH models, Studies in Nonlinear Dynamics and Econometrics, 9, 1-53.

Nelson DB (1991) Conditional Heteroskedasticity in Asset Returns: A New Approach, Econometrica, 59, 347–370.

Pelletier D (2006) Regime switching for dynamic correlations, Journal of Econometrics, 131, 445-473.

Sims C (1980) Macroeconomics and reality, Econometrica, 48(1),‎ 1-48.

Susmel R (2000) Switching volatility in international equity markets, International Journal of Finance and Economics, 5, 265-283.

Zakoïan JM (1994) Threshold heteroskedastic models, Journal of Economic Dynamics and Control, 18, 931-955.



Special Issue Japan