Portfolio Balance Effects and the Federal Reserve's Large-Scale Asset Purchases

37 Pages Posted: 26 Apr 2014 Last revised: 26 Jan 2018

See all articles by Thomas Emmerling

Thomas Emmerling

Zicklin School of Business, Baruch College - The City University of New York

Robert A. Jarrow

Cornell University - Samuel Curtis Johnson Graduate School of Management

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York

Date Written: August 30, 2017

Abstract

Whereas much of previous literature focuses upon the impact on yields from the Federal Reserve's large-scale asset purchases (LSAPs), we study the changes to expected returns. Through a simple general equilibrium model, we motivate how LSAPs may impact equilibrium bond and equity expected returns. Our empirical investigation offers support for changes to risk premia coincident with LSAPs. For both equity and bonds, we find evidence for supply/demand LSAPs effects; equity effects consistent with conventual theory whereas bond effects appear to be an anomaly. Such findings represent novel insight for weighing the efficacy and identifying the scope of LSAPs.

Keywords: Quantitative easing, portfolio balance, equity risk premium, bond risk premium

JEL Classification: E43, E52, G11, G12

Suggested Citation

Emmerling, Thomas and Jarrow, Robert A. and Yildirim, Yildiray, Portfolio Balance Effects and the Federal Reserve's Large-Scale Asset Purchases (August 30, 2017). Available at SSRN: https://ssrn.com/abstract=2428784 or http://dx.doi.org/10.2139/ssrn.2428784

Thomas Emmerling (Contact Author)

Zicklin School of Business, Baruch College - The City University of New York ( email )

One Bernard Baruch Way
Box C-403
New York, NY 10010
United States

HOME PAGE: http://zicklin.baruch.cuny.edu/faculty/profiles/thomas-j.-emmerling

Robert A. Jarrow

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Finance
Ithaca, NY 14853
United States
607-255-4729 (Phone)
607-254-4590 (Fax)

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States

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