Preface and acknowledgements
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- 6.3. The Influence of the Hybrid Car
- 7. Analyses and Interpretations
- 7.1. Unusual events as external factors
- 7.2. Hybrid cars as an internal factor
6.2. Regression ResultsIn this section, the regression results are described by using the equation mentioned in Chapter 5. The below table shows the results of the auto index that consists of eight automobile companies by using the Fama-French three factor equation (the market index, the SMB, and the HML) and the fourth oil factor. The first column shows the regression for the entire time period from January 2001 to March 2011. The adjusted R squared is 69 percent, which is higher than the results from the study on North American automobile manufacturers (see Cameron and Schnusenberg 2008). Moreover, the regression shows a statistically significant adverse relationship between Dubai Fateh crude oil prices and the excess stock returns of automobile companies. Under ceteris paribus, a 1 percent increase in the Dubai oil price index will decrease the auto index of the top eight Japanese automobile companies by 0.02 percent. Apart from the results of the oil index, the market index results a positive beta and statistically significant. The coefficient of the market index is slightly higher than one, which implies the automobile manufacturers’ stock prices are significantly correlated with the TOPIX index. Under ceteris paribus, when the market premium rises by 1 percent, it will increase the stock returns of automobile manufacturers by 1.08 percent. The Fama-French factors, the SMB and the HML show a negative relationship with the auto index, but only the SMB is statistically significant while Cameron and Schnusenberg (2008) exhibited a positive relationship between both the SMB and the HML with the auto index, and the HML was significant. Table 6: Regression results for the auto index
t statistics are in parentheses; †,* and ** denote that t-statistics are statistically significant at the 1%, 5%, and10% level of significance respectively. Table 6 gives the regression results for all three phases to investigate the influence of the Iraq invasion 2003. The results show a negative relationship between the Dubai Crude oil index and the auto index in the pre-war period and the post-war period. But, the result is statistically significant only in the pre-war period. It implies the political instabilites conditions that were occured during pre-invasion of Iraq significantly affected on the relationship between oil prices and stock prices of Japanese automakers. In the post-war period, oil prices were expected to become more negative explanatory variable of the stock prices of automobile companies. However, the coefficient of oil index during the post-war period is less negative than the coefficient of oil index during the pre-war period and is not significant. But, the adjusted r-squared shows significant increased from 49 percent in the pre-war stage to 56 percent in the post-war stage which explicitly explained the oil index explains better the auto index in the post-war period. Within both phases, the results indicate that stock prices of automobile companies are adversely affected by crude oil prices during the pre-war phase and the post-war phase. A 1 percent increase in the Dubai oil price index, will decrease stock performance of automobile companies by 0.08 percent and 0.009 percent respectively, before and after the invasion. Additionally, an interesting outcome is during the occurence of Iraq war where the oil index shows a positive relationship with the auto index. A 1 percent increase in the Dubai oil price index will increase stock performance of automobile companies by 0.029 percent, under ceteris paribus. However, the term is statistically insignificant that implies the occurence of Iraq invasion 2003 had no influence on the relationship between stock prices of Japanese auto manufacturers and crude oil prices. In addition, when the invasion of Iraq was occured, the adjusted r-squared reached its peak at 86 percent. Further result, all phases show a positive and statistically significant relationship between the market index and the auto index. Both the pre-war phase and the post-war phase, the respective market betas are almost one, which means that stock prices of automobile manufacturers are as risky as the average on the stock market. During the pre-war stage and the post-war stage, the coefficient shows that if there was an increase in the market index by 1 percent, a stock performance of the Japanese automobile companies would increase by 0.92 percent and 0.97 percent respectively. However, during the Iraq invasion, the regression exhibited higher coefficient relationship between the market index and the automobile manufacturers’ stock prices which will increase by 1.26 percent. Thus, the auto index consisting of eight automobile companies during the war period is slightly riskier than the index in both the pre-war period and the post-war period. Thus, the result implies that stock prices of Japanese automobile companies is highly correlated with the TOPIX index. In terms of the other Fama-French factors, the SMB and the HML, The results show the same trend across the entire time period and exhibit negative relationships between the auto index and the SMB or the HML for all three phases. The coefficient of the SMB and the HML during the post-war period are smaller than during the pre-war period. Moreover, it is important to note that in the occurence of the war, the coefficient of the SMB and the HML turned out to be more negative than in the post-war period. The HML factor is significant during the war and the post-war period. Therefore, we may conclude that, in general, investors look at the stocks of Japanese automobile companies as growth stocks (low B/M) rather than value stocks. Moving towards the credit crisis event, table 6 also gives clear results. The crisis is divided by three sub-periods (pre-crisis, crisis, and post-crisis). The results show an impressive adjusted r-squared for all phases. The adjusted r-squared is 80 percent when the financial crisis is occured while occurs while the adjusted r- squareds in the pre-crisis and post-crisis periods are 77 percent and 71 percent respectively. Furthermore, the auto index has a negative relationship with the Dubai Crude oil index in all phases. We expect that the oil index in the occurence of crisis was smaller (more negative) than the oil index in the post-crisis period and the pre-crisis period. Surprisingly, The coefficient of oil index in the post-crisis period exhibits the smallest coefficient whereas the oil index in the pre-crisis period is smaller (more negative) than the oil index when the crisis took place. Eventhough the adjusted r-squared is the highest when the occurence of financial crisis, the coefficient of oil factor is less negative than the oil index’s coefficient in the pre-crisis period and post-crisis period. Coefficient of the oil index in the occurence of crisis implies when the oil index increases by 1 percent, the auto index will decrease by -0.008 percent. Further test, we found that the size of oil index in the pre-crisis period is less negative than in the post-crisis period and conclude that the most negative relationship between the oil index and auto index occured in the post-crisis period. A 1 percent increase in the Dubai oil price index will decrease stock performance of automobile companies by 0.044 percent. However, only the post-crisis is statistically significant. The result implies the late reaction from market participants during the post-crisis period had an influence on the relationship between stock prices of automobile manufacturers and oil prices. Moreover, the market index exhibits a positive relationship with the auto index where the coefficient is almost one and remains statistically significant for all sub-periods. It implies that the stock prices of automobile manufacturers are as risky as the Japanese stock market on average. The highest market beta occurs in the post-crisis period. A 1 percent increase in the market index, the stock prices of the automobile companies increase by 1.218 percent. Additionally, in terms of the SMB and the HML, the regression exhibits a positive relationship between both risk factors and the auto index in the occurence of crisis. However, it is not statistically significant. A positive coefficient of the HML implies that investors look at the automobile manufacturers’ stock prices as value stocks rather than growth stocks. On the contrary, the SMB and the HML are negatively correlated with the auto index in the post-crisis period and the pre-crisis period. Furthermore, the size of both the SMB and the HML in the pre-crisis period is smaller than in the post-crisis period and both coefficients are statistically significant. 6.3. The Influence of the Hybrid CarThis section discusses the influence of hybrid car sales on stock performance of Japanese automakers. Table 3 in Chapter 5 shows the percentage sales of hybrid cars by Toyota and Honda from 2001 until 2011. From the table, it can be concluded that the sales of hybrid cars boomed in Japan in the fiscal year 2009. Both Toyota and Honda successfully sold hybrid cars in Japan: 251 million and 96 million respectively. Further test, table 7 shows the regression between the hybrid cars index and the Fama-French three factors and the fourth oil factor. Table 7: Hybrid car index
t-statistics in parentheses ; †,* and ** denote that t statistics are statistically significant at the 1%, 5%, and 10% level of significance Table 7 shows that the adjusted r-squared significantly improve from 66 percent before the boomed sales to 70 percent after the boomed sales. The regression shows that the relationship between the oil index and the dependent variable (the hybrid car index) is negative and statistically insignificant before the boom in sales of hybrid cars. Under ceteris paribus, 1 percent increase of the Dubai oil price index will decrease the stock performance of hybrid car companies by 0.013 percent. Furthermore, we expect the skyrocketing of crude oil prices will trigger the hybrid car sales so the profit of the hybrid car manufacturers explicitly influenced by the sales. The result clearly confirms that an inverse relationship changes to a linear relationship between the oil index and the auto index after the boomed sales of hybrid cars. The coefficient shows a 1 percent increase of the crude oil price index will increase the stock returns of hybrid car manufacturers by 0.03 percent. However, the result is not statistically significant. Therefore, the results from the above table provide evidence that there is no influence of the boom in sales of hybrid cars in Japan (particularly before the boomed sales and after the boomed sales) on the relationship between the oil index and the hybrid automakers index. Furthermore, the coefficient of the market index is almost one in both before booming sales and after booming sales of hybrid cars. However, after the boom in sales of hybrid cars, the market beta is smaller than the market beta before the boom in sales. In addition, both market betas are statistically significant eventhough the t-statistic becomes smaller after the booming sales. The market beta can be interpreted as when a market index increases by 1 percent, the stock prices of the hybrid car manufacturers increase by 0.85 percent and 0.77 percent respectively before the sales boom and after the sales boom. Moreover, the results of other Fama-French factors, namely size anomaly, captures a negative relationship between the SMB and the hybrid car index for both phases but it is only statistically significant after the booming hybrid car sales period. For value anomaly, the HML coefficient gives a positive relationship with the hybrid car auto index before the booming sales period but it is not statistically significant. On the contrary, the HML coefficient is negative and statistically significant after the booming sales. Table 8: Regression results of Toyota index
t-statistics in parentheses ; * denotes that t statistics are statistically significant at the 1% level of significance Table 9: Regression results of Honda index
t-statistics in parentheses ; * denotes that t statistics are statistically significant at the 1% level of significance Table 10: Regression results of Toyota and Honda after booming till before the earthquake
t-statistics in parentheses ; * denotes that t statistics are statistically significant at the 1% level of significance To give better understand of this internal factor, Toyota and Honda are regressed separately by using Fama French factors and oil factor as exhibited in table 8 and table 9, respectively. Eventhough the oil price was volatile and has risen starting from 2001 till 2008, the correlation between stock prices of Toyota and crude oil prices was not really disreputable. Table 8 obviously indicates that the relationship between crude oil prices and stock prices of hybrid car companies is non-linear before the boom in sales of hybrid cars whereas the relationship turns to be a linear one after the boom period. Understandable, our expectation about the influence of hybrid cars on the stock prices of hybrid car companies is in line. Under ceteris paribus, an increase of oil index by 1 percent before the boom in sales of hybrid cars, it will decrease the stock performance of Toyota by 0.00035 percent while it will increase the Toyota’s stock prices by 0.02 percent after the boom in hybrid cars’ sales. Compared with its rival, Honda’s stock prices seems to perform better than the Toyota’s before the boom in sales of hybrid cars. It can be seen from table 9 that the Honda exhibits a linear relationship between its stock prices and crude oil prices during both periods. Moreover, a positive coefficient of the oil index slightly decreases from 0.031 percent before the booming sales to 0.01percent after the booming sales of hybrid cars. However, it has to be noted that the coefficient of the oil index is significant only before the booming hybrid car sales period. Furthermore a concise explanation about the boom in sales of hybrid for both companies will be explained in the next chapter. 7. Analyses and InterpretationsThis chapter discusses the possible reasons for the outcome of the regression results above. This section will only focus on the relationship between stock prices and crude oil prices. Furthermore, the results are going to be compared with the real situations at that time in order to give better understanding of the reasons lying behind the causal relationship. 7.1. Unusual events as external factorsFirstly, the auto index and the market index are influenced by the same macro-economic factors that investors have considered. The regression results exhibit a negative relationship between crude oil prices and stock performance of automobile companies for the whole time period. It implies that the increase of the oil price is a serious problem for Japan, as it is heavily dependent on overseas supplies. The higher oil prices worsen the stock performance of Japanese automakers. Oil is perceived as an output and an input by the automakers. Their activities need the supply of oil. The industries’ activities may be hampered as more expensive oil prices reflect on higher transportation costs and production costs which can diminish earnings. Sedan and small cars are primary products of Japanese automobile companies. These are claimed only use less fuel compared with SUV vehicles (see Cameron and Schnusenberg, 2008 for an analysis of SUV vehicles). The price of automobile in Japan is relatively inexpensive. However, high automobile tax and high gasoline prices in Japan hamper the sales of vehicles in Japan. Nonetheless, the decrease in stock returns is unavoidable owing to higher oil prices. Thus, the causal relationship implies that an increased in the Dubai crude oil prices will have a detrimental effect on Japanese auto manufacturers’ stock prices. Secondly, crude oil prices go up whenever supply and demand become tight. Moreover, crude oil prices rise when the market anticipates a shortage or an oversupply due to unusual events such as war. The turmoil that happened in Iraq in mid 2003 caused problems for Japan because Iraq is responsible for a large portion of the global oil reserves, so that there was an adverse affect between the stock prices of automakers and crude oil prices. During the pre-war phase, political tensions resulted in increasing oil prices. Figure 3 shows that the Dubai crude oil price was between 17 US$/barrel and 30 US$/barrel in the pre-war period. Surprisingly, when the invasion occured, a linear relationship was demonstrated between stock prices and crude oil prices. On the first day of the Iraq invasion, March 19, 2003, Dubai crude oil price was 30.28 US$/barrel or equivalent to 2,552 Japanese Yen. The Dubai crude oil price slightly dropped on the last day of the invasion stayed at 24.11 US$/barrel which was equivalent to 2,033 Japanese Yen. Strictly speaking, the crude oil price surprisingly went down during war and so did the automobile manufacturers’ stock price. The price of crude oil fell due to the fact that demand may have been eroding under pressure from higher crude oil prices. The Iraq war has reduced the production of oil and has been blamed for increasing oil prices. However in reality, the reserves of oil in Iraq was unaffected when the invasion was occured. Therefore, there was no shortage of oil due to war. In addition, the Iraqi war coincided with the start of a sharp rise in imports of crude oil due to the booming economies of China and India and experts say this alignment of factors may have kept prices permanently high after the Iraq invasion. The increment in the oil prices slumps the stock performance of Japanese automakers. However, it has to be remembered that the result is statistically significant only during the pre-war period. Thirdly, figure 3 shows that the Dubai crude oil price drastically increased during the credit crisis. By looking at traditional models, oil price as a macro-economic factor is really sensitive and only moves as a result of news. So, when news enters the market, the oil price reacts. When there is a large news shock (like the situation of a financial crisis), it has a large effect on prices for that period. Following this line of thinking, when information arrives at the market, prices should ajdust without any form of trade. Buyers found it easier to speculate on oil prices as Tokyo Commodity Exchange (TOCOM) introduced futures and options with regard to commodities. Buyers start to speculate in oil markets as they know that the price of oil will go up. The results are not surprising. Dubai crude oil price reached its peak at 136.82 US$/barrel. During the financial crisis, the further increase in oil price was driven by supply and demand conditions with regard to oil in the Middle-East market. According to Economist Intelligence Unit (EIU), world oil demand was falling. It is estimated that demand fell by 0.2 percent in 2008 and expected to decrease by 0.4 percent in 2009. Moreover, plummeting world demand is mainly driven by falling consumption in developed countries. For instance, Japan reduced its oil consumption from 4.9 million to 4.4 million barrels/day by 2008 and 2009 respectively. According to the law of demand and supply, lower demand would decrease the price. However, the oil price was skyrocketing. This was because many oil exporting countries pegged their currency to the US Dollar. The US Dollar was weak due to the financial crisis, so oil revenue decreased and cost increased. As a result, OPEC countries must had to raise the price of oil to maintain the profit margin. Eventhough the demand for oil by Non-OECD countries is expected to grow, it would not be sheltered from the consequences of financial crisis turmoil, as the demand grows at a slower pace over short-to-medium term. As a consequence, the increase in the oil prices during the crisis affect the demand of vehicles. Many Japan automakers slashed their production during the economic crisis and delayed investments in new factories. According to the Toyota official website, Toyota’s production decreased by 2.2 million units in the fiscal year 2008. They also cut forecasting of profits, dismissed nonstaff workers and delayed investments. Nissan and Suzuki also cut their production by 80,000 vehicles and 30,000 vehicles, respectively during the same year. Even worse, automakers usually raise funds through bonds and goverment loans to pay their debts. Yasuhiro Matsumoto, a senior analyst at Shinsei Securities Co. in Tokyo stated in Bloomberg that “the government loans combined with the sale of bonds shows how much Toyota fears the upsurge in the oil prices during financial crisis”. After the crisis, the oil price went down to 49.76 US$/barrel and remained to be volatile. However, there are several reasons to believe that oil prices may continue to rise in the future. It reached its peak of 90.67 US$/barrel on December 31,2010. Compared with other phases, the Dubai crude oil price was lower after the crisis occured. However, the negative level relationship between the auto index and the oil index is in the post-crisis period is bigger than during other phases. This puzzle seems to be due to a market delayed reaction. This means that stock prices of Japanese automobile manufacturers reacted after the occurence of the event. Peng (2002) argued that information capacity constraints cause a delay in the response of asset prices to fundamental and firm specific shocks. However, market participants have somewhat to believe that oil prices may continue to rise in the future. 7.2. Hybrid cars as an internal factorThe influence of hybrid cars has become more interesting topic as, in general, the regression exhibits a negative relationship within the oil price and the stock price of hybrid companies before the booming sales of hybrid car whilst the positive relationship occurs after the booming sales of hybrid cars. As we have discussed earlier, we have separated the regression for each Toyota and Honda Toyota chose to pursue hybrid development because, in comparison with other alternative fuesl such as bioethanol and biodiesel, the development of a hybrid will have much lower levels of CO2 emissions. The number of hybrid cars sold has increased rapidly every year. Table 2 in chapter 5 shows that in fiscal year 2001, Toyota sold merely 18,500 units. At that time, the number of hybrid cars were still small due to hybrid cars were not focusingly sold in Japan. By early 2004s, the price of crude oil imported by Japan increased from 19.8 US$/barrel to 28.65 US$/barrel and caused Toyota to focus on hybrid car sales in the domestic market. As a result, sales of Toyota hybrid cars continued to rise by about 68,700 units by fiscal year 2004. Moreover, Toyota sold 72,400 units in the fiscal year 2006 when the Dubai crude oil price was around 65 US$/barrel. Thus, skyrocketing in oil prices seem to give more opportunities for Toyota to increase the sales of environmentally friendly vehicles. Consumers demand more fuel efficient vehicles because of high oil prices so that the hybrid automakers compete each other to meet the consumers’ demand. In fiscal year 2008, Toyota and its Lexus brand successfully sold around 104,000 units hybrid vehicles, while the crude oil price was at above 100 US$/barrel due to the financial crisis of 2008. Summarizing the situation, high oil prices have a positive side-effect for Toyota’s profit which boosts the sales of hybrid cars. On the other hand, Japanese government is responsible for the Kyoto Protocol with regard to environmental awareness. On January 2009, the Japanese government introduced subsidies and tax incentives which boosted the sales of Toyota Prius. These tax incentive pushed consumers to sell their old cars for fuel efficient cars. However, the government promised to stimulus the sales incentives of hybrid cars until September 2010. As a consequence, tax incentive from the government and high oil prices provided a tailwind for buyers of hybrid cars as indicated by the many buyers who took advantage of the offer with regard to the Toyota Prius. In other words, consumers who drive the vehicles that relatively use high fuel substitute their cars with the hybrid vehicles. The increasing of crude oil price and especially a peaked during 2008 is followed by the increase in the sales of hybrid vehicles made by Toyota. However, Konji Endo a managing director of advanced research in Tokyo, as cited in Bloomberg stated that the Toyota Prius earned the lowest operating profit compared with other Toyota products unexpectedly. The reason is due to high R&D cost that has incurred since the hybrid car project began. As Toyota heavily focuses on production of hybrid cars at the cost of other models is negative which means Toyota may see a decline in its operating profit. Consequently, the stock price movement of Toyota is also impacted on with regard to the R&D cost. However, it is important to remember that the coefficient of oil index is not statistically significant before the booming of the hybrid cars. Toyota started recording profit from the sales of hybrid cars on its Prius third generation model that introduced by the mid year 2009. Price competition from rival hybrid automakers has also made it difficult for Toyota to capitalize on the success of the model. Consequently, the President of Toyota announced on Toyota’s official website that the price of the third generation of Prius was to be cut by 12 percent. As a result, the sales of hybrid cars in Japan tremendously increased with the percentage sales rising from 18.06 percent to 34.50 percent by the fiscal year 2009 and fiscal year 2010 respectively. Although the Japanese government only supported the incentives until September 2010, Toyota successfully recorded 433,600 units of hybrid cars in Japan by the fiscal year 2010. Surprisingly, JADA ranked Toyota Prius in the first place in terms of the highest car sales in Japan from September 2010 until December 2010 eventhough it was ranked in second place early in 2011. This implie that consumers still want to see an improvement in hybrid cars. With rapidly shooting the oil price creates “a hole” in the pocket of consumers, new vehicle buyers are more than ever interested in cheaper fuel engines. Many people would like to see the cost of its vehicle itself make it “better value for money”. After the boom in sales of the hybrid vehicles, the crude oil price is highly sensitive. On January 25, 2011, the delivery price of Dubai crude oil was a 93.16 US$/barrel. The rise in the Dubai crude oil price is due to the political instabilities that occured in the Middle-East (i.e. Egypt and Libya). The political tensions continued to rise further and the price of Dubai crude oil finally reached a level of 109 US$/barrel by the end of March 2011. Indeed, this condition reduces the demand for Dubai crude oil. Japan demanded less Dubai crude oil during the Middle-East turmoil due to high cost of crude oil. In response, there has been a high demand for Toyota hybrid vehicles. A frantic number of hybrid car sold is indicated by the regression results that the coefficient of the oil index is positively related with the stock prices of Toyota but statistically insignificant. On the other hand, Honda has concentrated more on the development of small hybrid cars. From table 2, we can see the difference in unit sales of hybrid cars between Toyota and Honda is large. From 1999 until 2008, Honda did not really focus on the development of hybrid cars. This can be seen by the small number of hybrid cars sold in Japan. Even worse, In 2006 Honda stopped to produce the Honda Insight. From JADA, the production of Honda hybrid cars such as the Honda insight and Honda Civic Hybrid are never ranked among the “best 30” vehicles sold in Japan before the boom in sales of hybrid cars. Honda is more focused to sell hybrid cars in North America. Honda set the price of its hybrid products lower than that of Toyota. It made the Honda Insight as the most affordable hybrid car at that time. As every hybrid carmaker cautiously with the technology, Honda awares of the R&D costs of producing a hybrid car. Honda’s technology is referred to as Integrated Motor Assist (IMA), the company has put a lot of effort into reducing its costs. Thus, pushing the costs of the IMA down is one pratical way since it would cost a lot more to come up with another hybrid powertrain. As a result, eventhough Honda only sells small numbers of hybrid cars before the boom, its effort to reduce the R&D costs can create returns. The positive relationship between the stock price of Honda and the oil price is influenced by the number of hybrid cars sold. When oil price increases, it improves the sales of hybrid cars and boosts the stock returns of Honda. Similarly, the oil index exhibit a linear relationship with the Honda index after the boom in sales of hybrid cars. Under ceteris paribus, table 9 shows an increase by 1% in oil index, it will increase the Honda’s stock returns by 0.010 percent. By the early 2009s, the demand for hybrid car was so high due to the government incentive to encourage the sale of green cars. In response, Honda Insight was successfully sold and, moreover, Honda planned to produce more hybrid cars by 2010. It seems Honda may continue a successful story of its hybrid car’s sales. Unfortunately, on March 11, 2011 Japan was attacked by Tohoku earthquake that halted every industries activities. Eventhough the main assembly of hybrid plant is located outside the earthquake area, however, the main supplier of hybrid’s batteries is located near the earthquake area. According to Bloomberg, Toyota recorded itself as the most affected automaker by the earthquake where the production was shut down and Toyota’s vehicle sales dropped by 57 percent by March 2011. Toyota also had to postpone its new product, Toyota Prius Alpha, due to earthquake. But most of this problem was hampered the production activities of Honda especially its R&D center is located in the earthquake area. As a results, Honda expects decreasing on its operating profit. Table 10 shows the regression of Toyota and Honda from the period of after the booming sales of hybrid cars till the day before the occurence of the earthquake. As a result, the coefficient of oil index is slightly larger than the coefficient of oil index before the earthquake occured.
8. ConclusionsThe increment in crude oil prices in the past several years plays a major role in the automotive industries. Indeed, the automotive industries are highly sensitive to oil prices change. In this paper, the relationship between stock performance of Japanese automobile companies and crude oil prices is investigated. Specifically, this thesis aims to answer the question of whether the external factors such as Iraq invasion 2003 and financial crisis 2008 affect the relationship. Moreover, whether the hybrid car manufacturers is certainly not vulnerable to the surge in oil prices. The empirical result provides evidence that the upsurge in crude oil prices reduce the Japanese automobile manufacturers’ stock prices. During the Iraq invasion, the result determines that crude oil prices have an inverse relationship with excess stock returns of Japanese automakers in the pre-war and the post-war periods. During the post-war period, the oil index is larger (less negative) than the oil index in the pre-war period. Furthermore, crude oil prices have a linear relationship with excess returns of Japanese automakers when the invasion took place. Surprisingly, the relationship between stock prices and oil prices is statistically significant only during the pre-war period. It implies the political instabilities before the occurence of invasion influence on the relationship between oil prices and stock prices of Japanese automakers. Another event, financial crisis 2008, also causes an inverse relationship between the auto index and the oil index. A coefficient of the oil index in the crisis period exhibits the largest coefficient. Meanwhile the oil index in the pre-crisis period is larger (less negative) than the oil index in the post-crisis period but, it is important to remember that the significant result is only during the post-crisis period. The result implies that market delayed reaction after the crisis period affects the relationship between oil prices and stock prices of automakers. Moreover, Japanese government awares to reduce CO2 emissions by supporting tax incentives for green cars. To analyze the influence of hybrid cars on the relationship betweeen stock prices of hybrid automakers and crude oil prices, the regression is divided into two phases. In general, the conclusion is: crude oil prices have an inverse relationship with stock prices of Japanese hybrid automakers before the boom in sales of hybrid cars whereas a relationship turns to be a linear after the boom in sales of hybrid car. The skyrocketing in the oil prices boosts the sales of hybrid cars which have a positive side-effect for the hybrid automakers. Consumers demand more to have fuel efficient vehicles because of high oil prices. With rapidly shooting the oil price creates “a hole” in the pocket of consumers, new vehicle buyers are more than ever interested in cheaper fuel engines. However, both results are insignificant. |