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Portfolio balance effects and the Federal Reserve’s large-scale asset purchases

Author

Listed:
  • Thomas Emmerling
  • Robert Jarrow
  • Yildiray Yildirim

Abstract

Purpose - Whereas much of previous literature focuses upon the impact on yields from the Federal Reserve’s large-scale asset purchases (LSAPs), the purpose of this paper is to study the changes to expected returns. Design/methodology/approach - This empirical investigation offers support for changes to risk premia coincident with LSAPs. Findings - For both equity and bonds, the authors find evidence for supply/demand LSAPs effects; the equity effects are consistent with a substitution effect from bonds to equities, whereas the bond effects appear to be an anomaly. Originality/value - The findings represent new insight for weighing the efficacy and identifying the scope of LSAPs.

Suggested Citation

  • Thomas Emmerling & Robert Jarrow & Yildiray Yildirim, 2018. "Portfolio balance effects and the Federal Reserve’s large-scale asset purchases," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 35(1), pages 2-24, March.
    • Handle: RePEc:eme:sefpps:sef-10-2017-0284
    DOI: 10.1108/SEF-10-2017-0284
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    Citations

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    Cited by:

    1. Cohen, Lior, 2023. "The effects of the BoJ's ETF purchases on equities and corporate investment," Economic Modelling, Elsevier, vol. 129(C).

    More about this item

    Keywords

    Quantitative easing; Bond risk premium; Equity risk premium; Portfolio balance; E43; E52; G11; G12;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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