Surreal illustration of Japanese stock exchange floor overlaid with historical headlines.

Decoding Market Mysteries: How Historical Events Shape Stock Prices

Mira Elwood in Business & Economy December 2025 • 4 min read.

"Uncover the hidden connections between global turning points and the fluctuations of the Japanese stock market from 1924 to 1943."

The stock market, often seen as a barometer of economic health, is influenced by a complex web of factors. While financial metrics and company performance play a significant role, broader historical events can exert a profound influence on investor sentiment and market dynamics. Understanding these connections is crucial for anyone seeking to navigate the often-turbulent waters of the stock market.

One way to think about the market is through the lens of the Adaptive Market Hypothesis (AMH). Proposed as an alternative to the traditional Efficient Market Hypothesis (EMH), the AMH suggests that market efficiency isn't constant. Instead, it evolves over time, adapting to changing conditions like economic booms, busts, and even major geopolitical shifts.

Now, a new study dives deep into this interplay of history and finance, examining the Japanese stock market during the tumultuous period of 1924 to 1943. By analyzing a newly constructed stock index and employing advanced statistical techniques, the research sheds light on how key historical events shaped market efficiency and investor behavior in prewar and wartime Japan.

The Prewar and Wartime Japanese Stock Market: A Unique Landscape

Surreal illustration of Japanese stock exchange floor overlaid with historical headlines.

The Japanese stock market of the early 20th century was structured quite differently from modern markets. Understanding these unique characteristics is crucial for interpreting its response to historical events. Some key differences included:

Furthermore, the study uses the equity performance index (EQPI), a market capitalization-weighted index for short-term clearing futures transactions, which allows consideration for ex-rights, additional payments, and dividends. By utilizing the EQPI, the research can examine the time-varying efficiency of the Japanese stock market.

Part-Paid Stock System: Investors paid for shares in installments, rather than in full, affecting how capital was raised and managed.
Focus on Futures Trading: A significant portion of trading activity centered on futures contracts, especially short-term clearing futures, rather than spot transactions.
Institutional Differences: Capital increases were primarily through rights offers to shareholders at par value. These existing shareholders had to add the difference between the market value and par value as profit or loss to their investment results.

The study also considers various factors influencing market participant perspectives, from domestic financial and commodity markets to overseas political events. This provides a rich understanding of the information environment in which investors operated.

History and Finance Intertwined

This study highlights the significant relationship between historical events and stock market efficiency. By analyzing the Japanese stock market from 1924 to 1943, the research demonstrates how economic shocks, policy shifts, and even war can shape investor behavior and market dynamics. These insights offer important lessons for understanding market behavior in our modern, interconnected world.

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This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.1911.04059,

Title: Measuring The Time-Varying Market Efficiency In The Prewar And Wartime Japanese Stock Market, 1924-1943

Subject: q-fin.st econ.gn q-fin.ec q-fin.gn

Authors: Kenichi Hirayama, Akihiko Noda

Published: 10-11-2019

Everything You Need To Know

What is the Adaptive Market Hypothesis (AMH), and how does it relate to the study of the Japanese stock market?

The Adaptive Market Hypothesis (AMH) proposes that market efficiency isn't constant. It suggests that market efficiency evolves over time, adapting to changing conditions like economic booms, busts, and even major geopolitical shifts. The study utilizes the AMH as a framework to examine the Japanese stock market from 1924 to 1943, focusing on how historical events such as economic shocks, policy shifts, and war, shaped market efficiency and investor behavior within this specific period. The AMH is used as an alternative to the Efficient Market Hypothesis (EMH).

How did the characteristics of the Japanese stock market from 1924 to 1943 differ from modern markets?

The Japanese stock market of the early 20th century differed significantly from modern markets. The study highlights key differences including the Part-Paid Stock System where investors paid for shares in installments instead of full payment, the Focus on Futures Trading which concentrated on futures contracts, especially short-term clearing futures, and Institutional Differences where capital increases were primarily through rights offers to shareholders at par value. The shareholders had to add the difference between market value and par value as profit or loss to their investment results. These factors are crucial for interpreting the market's response to historical events within the study's timeframe.

What is the EQPI, and why is it important in analyzing the Japanese stock market during the specified period?

The study uses the equity performance index (EQPI), a market capitalization-weighted index for short-term clearing futures transactions. The EQPI allows the research to consider ex-rights, additional payments, and dividends. The EQPI is important because it provides a comprehensive view of market performance. By utilizing the EQPI, the research can examine the time-varying efficiency of the Japanese stock market from 1924 to 1943.

What specific historical events are examined in relation to the Japanese stock market between 1924 and 1943, and why are they significant?

The research examines how key historical events, including economic shocks, policy shifts, and war, influenced the Japanese stock market from 1924 to 1943. These events are significant because they shaped investor behavior and market dynamics. The study demonstrates how these occurrences affected market efficiency within the specified timeframe. By understanding the impacts of these historical events, insights are offered for comprehending market behavior in the modern, interconnected world.

In what ways can insights from the study of the Japanese stock market during 1924-1943 inform our understanding of modern market behavior?

The study's insights offer important lessons for understanding market behavior in today's interconnected world by demonstrating how broader historical events can profoundly influence investor sentiment and market dynamics. The analysis of the Japanese stock market between 1924 and 1943 shows a clear relationship between economic shocks, policy shifts, and even war on shaping investor behavior. By understanding the dynamics of the Prewar and Wartime Japanese Stock Market, we gain a deeper understanding of how historical events impact market efficiency. This knowledge can help in navigating the often-turbulent waters of the stock market today, with a deeper understanding of the interplay between history and finance.