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Quantitative Easing and Equity Prices: Evidence from the ETF Program of the Bank of Japan

Author

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  • Andrea Barbon
  • Virginia Gianinazzi

Abstract

Since the introduction of its quantitative and qualitative easing program in 2013, the Bank of Japan has been increasing its holdings of Japanese equity through large-scale purchases of index-linked ETFs, to lower risk premiums. We exploit the cross-sectional heterogeneity of the supply shock to identify a positive and persistent impact on stock prices, consistent with a portfolio balance channel. The evidence suggests that long-run demand curves for stocks are downward sloping with unitary price elasticity. We show that the purchases of ETFs tracking the price-weighted Nikkei 225 generate pricing distortions relative to a value-weighted benchmark.Received April 13, 2018; editorial decision July 18, 2019 by Editor Thierry Foucault. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Andrea Barbon & Virginia Gianinazzi, 2019. "Quantitative Easing and Equity Prices: Evidence from the ETF Program of the Bank of Japan," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 9(2), pages 210-255.
    • Handle: RePEc:oup:rasset:v:9:y:2019:i:2:p:210-255.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raz008
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    Citations

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    Cited by:

    1. Hiroshi Gunji & Kazuki Miura & Yuan Yuan, 2023. "The effect of the Bank of Japan's Exchange‐Traded Fund purchases on firm performance," Asian Economic Journal, East Asian Economic Association, vol. 37(3), pages 346-370, September.
    2. Alessandro Rebucci & Jonathan S. Hartley & Daniel Jiménez, 2022. "An Event Study of COVID-19 Central Bank Quantitative Easing in Advanced and Emerging Economies," Advances in Econometrics, in: Essays in Honor of M. Hashem Pesaran: Prediction and Macro Modeling, volume 43, pages 291-322, Emerald Group Publishing Limited.
    3. Ricardo J Caballero & Alp Simsek, 2021. "A Model of Endogenous Risk Intolerance and LSAPs: Asset Prices and Aggregate Demand in a “COVID-19” Shock [Financial intermediaries and the cross-section of asset returns]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5522-5580.
    4. Mitsuru Katagiri & Koji Takahashi & Junnosuke Shino, 2022. "Bank of Japan's ETF purchase program and equity risk premium: a CAPM interpretation," BIS Working Papers 1029, Bank for International Settlements.
    5. Stefania D'Amico & Vamsi Kurakula & Stephen M. Lee, 2020. "Impacts of the Fed Corporate Credit Facilities through the Lenses of ETFs and CDX," Working Paper Series WP-2020-14, Federal Reserve Bank of Chicago.
    6. Ben Charoenwong & Randall Morck & Yupana Wiwattanakantang, 2019. "Bank of Japan Equity Purchases: The (Non-)Effects of Extreme Quantitative Easing," NBER Working Papers 25525, National Bureau of Economic Research, Inc.
    7. Maciej Stefański, 2021. "Macroeconomic Effects of Quantitative Easing Using Mid-sized Bayesian Vector Autoregressions," KAE Working Papers 2021-068, Warsaw School of Economics, Collegium of Economic Analysis.
    8. Harada, Kimie & Okimoto, Tatsuyoshi, 2021. "The BOJ's ETF purchases and its effects on Nikkei 225 stocks," International Review of Financial Analysis, Elsevier, vol. 77(C).
    9. Ralph S. J. Koijen & Robert J. Richmond & Motohiro Yogo, 2020. "Which Investors Matter for Equity Valuations and Expected Returns?," NBER Working Papers 27402, National Bureau of Economic Research, Inc.
    10. Ko Adachi & Kazuhiro Hiraki & Tomiyuki Kitamura, 2021. "Supplementary Paper Series for the "Assessment" (1): The Effects of the Bank of Japan's ETF Purchases on Risk Premia in the Stock Markets," Bank of Japan Working Paper Series 21-E-3, Bank of Japan.
    11. Katagiri, Mitsuru & Shino, Junnosuke & Takahashi, Koji, 2022. "The announcement effects of a change in the Bank of Japan’s ETF purchase program: An event study," Finance Research Letters, Elsevier, vol. 50(C).
    12. Jin, Ling & Li, Zhisheng & Lu, Lei & Ni, Xiaoran, 2023. "Does stock market rescue affect investment efficiency in the real sector?," Journal of Financial Markets, Elsevier, vol. 65(C).
    13. Ailie Charteris & Conrad Alexander Steyn, 2023. "The Bank of Japan’s exchange traded fund purchases: a help or hindrance to market efficiency?," Journal of Asset Management, Palgrave Macmillan, vol. 24(3), pages 225-240, May.
    14. Ralph S. J. Koijen & Robert J. Richmond & Motohiro Yogo, 2020. "Which Investors Matter for Global Equity Valuations and Expected Returns?," Working Papers 2020-34, Princeton University. Economics Department..
    15. Hattori, Takahiro & Yoshida, Jiro, 2023. "The impact of Bank of Japan’s exchange-traded fund purchases," Journal of Financial Stability, Elsevier, vol. 65(C).
    16. Nozawa, Yoshio & Qiu, Yancheng, 2021. "Corporate bond market reactions to quantitative easing during the COVID-19 pandemic," Journal of Banking & Finance, Elsevier, vol. 133(C).
    17. Guo, Qi & Huang, Shao'an & Wang, Gaowang, 2024. "Stabilizing the Financial Markets through Communication and Informed Trading," MPRA Paper 120072, University Library of Munich, Germany.
    18. Guo, Qi & Huang, Shao'an & Wang, Gaowang, 2022. "Stabilizing the Financial Markets through Informed Trading," MPRA Paper 115470, University Library of Munich, Germany.
    19. El Kalak, Izidin & Leung, Woon Sau & Takahashi, Hidenori & Yamada, Kazuo, 2023. "The Bank of Japan's equity purchases and stock illiquidity," Journal of Financial Markets, Elsevier, vol. 63(C).
    20. Patrick Aldridge & David Cimon & Rishi Vala, 2023. "Central Bank Crisis Interventions: A Review of the Recent Literature on Potential Costs," Discussion Papers 2023-30, Bank of Canada.
    21. Cohen, Lior, 2023. "The effects of the BoJ's ETF purchases on equities and corporate investment," Economic Modelling, Elsevier, vol. 129(C).
    22. Shin-ichi Fukuda & Mariko Tanaka, 2022. "The Effects of Large-scale Equity Purchases during the Coronavirus Pandemic," CIRJE F-Series CIRJE-F-1186, CIRJE, Faculty of Economics, University of Tokyo.
    23. Maeda, Kou & Shino, Junnosuke & Takahashi, Koji, 2022. "Counteracting large-scale asset purchase program: The Bank of Japan’s ETF purchases and securities lending," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 563-576.

    More about this item

    Keywords

    E52; E58; B26;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics

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