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

Thomas Emmerling, Robert Jarrow () and Yildiray Yildirim

Studies in Economics and Finance, 2018, vol. 35, issue 1, 2-24

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.

Keywords: Quantitative easing; Bond risk premium; Equity risk premium; Portfolio balance; E43; E52; G11; G12 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-10-2017-0284

DOI: 10.1108/SEF-10-2017-0284

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