Quantitative Easing and Equity Prices: Evidence from the ETF Program of the Bank of Japan
Barbon A., Gianinazzi V.
Since the introduction of its Quantitative and Qualitative Easing program in 2013, the Bank of Japan (BoJ) has been increasing its holdings of Japanese equity through large purchases of index-linked ETFs with the intention of supporting asset prices and reducing the cost of capital of domestic companies. We exploit the cross-sectional heterogeneity of the shock to supply induced by the policy to identify a positive, sizeable and persistent impact on stock prices consistent with a portfolio balance channel. The evidence suggests that demand curves for stocks are downward sloping in the long-run. We estimate an increase of 20 basis points in aggregate market valuation per trillion Yen invested into the program, corresponding to a price elasticity of 1. Finally, we show that the purchases of ETFs tracking the price-weighted Nikkei 225 index generate significant pricing distortions.
Journal of Asset Pricing Studies
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Quantitative Easing, Monetary Policy, Bank of Japan, ETF