The Bank of Japan's equity purchases and stock illiquidity

Izidin El Kalak, Woon Sau Leung, Hidenori Takahashi and Kazuo Yamada

Journal of Financial Markets, 2023, vol. 63, issue C

Abstract: Using the large-scale index-linked exchange-traded fund (ETF) purchase program of the Bank of Japan (BOJ), we examine the role of unconventional equity-based monetary policies in the market liquidity of the underlying securities. Using a large sample of Japanese stocks, we document a significant increase in stock illiquidity when a firm's ownership by the BOJ increases. Intensified ETF arbitrage activities partially mediate such effect. The increased illiquidity is concentrated among small and young firms and those whose shares are likely subject to strong buying pressure. Finally, BOJ ownership increases comovement in liquidity and reduces informational efficiency.

Keywords: Bank of Japan; Monetary policy; ETF; ETF arbitrage; Stock illiquidity (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:63:y:2023:i:c:s138641812200060x

DOI: 10.1016/j.finmar.2022.100770

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