Scarcity and Spotlight Effects on Term Structure: Quantitative Easing in Japan

44 Pages Posted: 4 Jun 2017

See all articles by Loriana Pelizzon

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE; Ca Foscari University of Venice

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance

Reiko Tobe

Waseda University - Graduate School of Finance, Accounting & Law

Jun Uno

Waseda University

Multiple version iconThere are 2 versions of this paper

Date Written: November 17, 2017

Abstract

We investigate the determinants of the term structures of bond yield and market liquidity in the context of the Quantitative Easing (QE) programs implemented by the Bank of Japan. Between 2011 and 2016, we find that Japanese government bonds (JGBs) show an improvement in liquidity through the spotlight effect but also experience a deterioration in liquidity through the scarcity effect. As for the yield, both the spotlight and scarcity effects work in the same direction (i.e., they raise bond prices). Overall, the prices of JGBs rise by reflecting only the strong demand from the QE, despite the deterioration in liquidity.

Keywords: Sovereign bonds, quantitative easing, market liquidity, scarcity, spotlight

JEL Classification: C54; E43; E52; E58; G12; G14

Suggested Citation

Pelizzon, Loriana and Subrahmanyam, Marti G. and Tobe, Reiko and Uno, Jun, Scarcity and Spotlight Effects on Term Structure: Quantitative Easing in Japan (November 17, 2017). Paris December 2017 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2979845 or http://dx.doi.org/10.2139/ssrn.2979845

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance ( email )

Stern School of Business,
44 West 4th Street, Suite 9-68
New York, NY 10012-1126
United States
212-998-0348 (Phone)
212-995-4233 (Fax)

Reiko Tobe

Waseda University - Graduate School of Finance, Accounting & Law ( email )

1-4-1 Nihombashi
Chuo-ku
Tokyo, 103-0027
Japan

Jun Uno (Contact Author)

Waseda University ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku
Tokyo, 1698050
Japan

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