Our results indicate that the assumed structural identication scheme is compatible with the data. Based on the conrmed identication of funda- mental and nonfundamental shocks, the historical stock prices are decom- posed into fundamental components and nonfundamental components. In contrast to Binswanger (2004), the decomposition shows that the linkage be- tween Japanese stock prices and real activity shocks became strengthened since the bubble collapsed in the beginning of 1990s. After the outburst of the recent nancial crisis, the stock price collapsed again, while the devia- tion from the fundamental value remained small. In line with Chung and Lee (1998), our results suggest that the deviation of Japanese stock prices from.
