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Bank of Japan Equity Purchases: The (Non-)Effects of Extreme Quantitative Easing

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  • Ben Charoenwong
  • Randall Morck
  • Yupana Wiwattanakantang

Abstract

From January 2011 through March 2018, the Bank of Japan purchased equity index ETFs worth about 3.5% of GDP. Identification of the effect of central bank ETF purchases on stock valuations and corporate responses is via differently-weighted and changing stock indices. BOJ purchases lift valuations, increase share issuances, and increase total assets. On average, the latter increase is due to cash and short-term securities rather than capital investment. However, firms with worse corporate governance do increase capital investment. These findings suggest central bank equity purchases are a problematic tool for stimulating economic growth through high broad-based private-sector corporate investment.

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  • 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.
    • Handle: RePEc:nbr:nberwo:25525
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    Cited by:

    1. 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.
    2. Matteo Bonetti & Dirk Broeders & Damiaan Chen & Daniel Dimitrov, 2024. "Central Bank Capital and Shareholder Relationship," Working Papers 809, DNB.
    3. Guo, Qi & Huang, Shao’an & Wang, Gaowang, 2024. "Stabilizing the financial markets through communication and informed trading," Journal of Financial Markets, Elsevier, vol. 69(C).
    4. 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).
    5. Guo, Qi & Huang, Shao'an & Wang, Gaowang, 2022. "Stabilizing the Financial Markets through Informed Trading," MPRA Paper 115470, University Library of Munich, Germany.
    6. 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).
    7. Shirota, Toyoichiro, 2023. "State-dependent effects of the unconventional monetary policy in stock markets," Japan and the World Economy, Elsevier, vol. 67(C).

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    More about this item

    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
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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