The Bank of Japan’s equity purchases and stock illiquidity
The Bank of Japan’s equity purchases and stock illiquidity
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.
Bank of Japan, ETF, ETF arbitrage, monetary policy, stock illiquidity
El Kalak, Izidin
58495ec7-e523-401e-bce2-d236e7be273d
Leung, Woon Sau
73a8bf54-6035-4f11-a9ec-74272abbacb5
Takahashi, Hidenori
65091683-26be-44f7-9200-7cd7425e6960
Yamada, Kazuo
9b0ce37e-3e35-4a2a-a562-4219dfdb525e
7 March 2023
El Kalak, Izidin
58495ec7-e523-401e-bce2-d236e7be273d
Leung, Woon Sau
73a8bf54-6035-4f11-a9ec-74272abbacb5
Takahashi, Hidenori
65091683-26be-44f7-9200-7cd7425e6960
Yamada, Kazuo
9b0ce37e-3e35-4a2a-a562-4219dfdb525e
El Kalak, Izidin, Leung, Woon Sau, Takahashi, Hidenori and Yamada, Kazuo
(2023)
The Bank of Japan’s equity purchases and stock illiquidity.
Journal of Financial Markets, 63, [100770].
(doi:10.1016/j.finmar.2022.100770).
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.
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Accepted/In Press date: 12 July 2022
e-pub ahead of print date: 18 July 2022
Published date: 7 March 2023
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© 2022 The Authors
Keywords:
Bank of Japan, ETF, ETF arbitrage, monetary policy, stock illiquidity
Identifiers
Local EPrints ID: 484601
URI: http://eprints.soton.ac.uk/id/eprint/484601
ISSN: 1386-4181
PURE UUID: 784544fd-d710-402b-81fa-476732087f02
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Date deposited: 17 Nov 2023 18:00
Last modified: 18 Mar 2024 04:17
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Contributors
Author:
Izidin El Kalak
Author:
Woon Sau Leung
Author:
Hidenori Takahashi
Author:
Kazuo Yamada
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