Research on Market Reaction to New Product Launches by Japanese Game Companies

An Empirical Analysis based on the Semi-Strong Efficient Market Hypothesis

Abstract

Despite being a small island country, Japan has a leading role in the global gaming market. Since the days of home consoles until the next generation of consoles, pixel art to AAA masterpieces, Japanese manufacturers have transformed the industry many times over. Not only did Japanese game companies define the past few decades but they are still shaping the future. This paper chooses five leading Japanese game companies as samples: Nintendo, Sony, Sega, Capcom and Square Enix. According to the Semi-Strong Efficient Market Hypothesis, this study applies the Event Study method to perform an empirical analysis of the market reaction to new software and hardware product launches from 2017 to 2026. The study concludes that: (1) The Japanese gaming capital market is typically semi-strong efficient; the introduction of high-quality new products by game companies (like Resident Evil 4 Remake and The Legend of Zelda: Tears of the Kingdom) can create a substantial positive Cumulative Abnormal Returns (CAR). (2) The response to the Japanese gaming market has considerable asymmetry and loss aversion; new products that fail to meet the expectations of the people (like Final Fantasy XVI) have a significant negative correlation with Cumulative Abnormal Returns (CAR). (3) There is some corporate heterogeneity; the stock price elasticity of pure content developers (Capcom) is larger than that of diversified hardware platform providers (Sony). (4) The time discounting effect is confirmed in the difference between the announcement and the release of Pokemon Legends: Z-A. This paper not only supplements empirical research related to the Japanese gaming market and the financial field but also provides an empirical basis for managing market value of game enterprises and choosing strategies for investors.