Supplementary Paper Series for the "Assessment" (1): The Effects of the Bank of Japan's ETF Purchases on Risk Premia in the Stock Markets

Ko Adachi, Kazuhiro Hiraki and Tomiyuki Kitamura
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Ko Adachi: Bank of Japan
Kazuhiro Hiraki: Bank of Japan
Tomiyuki Kitamura: Bank of Japan

No 21-E-3, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper provides an empirical investigation of the effects of the Bank of Japan's exchange traded funds (ETF) purchases on risk premia in the stock markets. The analysis examines the following two indicators of risk premia: equity risk premium implied by Nikkei 225 option prices, and yield spreads of individual stocks. The former indicator is analyzed at daily frequency, and the latter is analyzed at weekly frequency. The analysis also examines how the effects of ETF purchases vary depending on market conditions and the size of ETF purchases. The results show that the Bank of Japan's ETF purchases have lowering effects on risk premia. The results also suggest that the lowering effects are larger (1) the lower the stock price index relative to its moving average trend, (2) the higher the volatility in the stock market when the stock price index is below its trend, (3) the larger the percentage decline in the stock price index immediately before the purchases, and (4) the larger the size of the purchases.

Keywords: Monetary Policy; ETF Purchases; Risk Premia; Purchase Effect Function (search for similar items in EconPapers)
JEL-codes: E52 E58 G10 G12 (search for similar items in EconPapers)
Date: 2021-04-30
New Economics Papers: this item is included in nep-cba and nep-mac
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