The Real Effects of Unconventional Monetary Policy and Market Frictions

dc.contributor.advisor Moshirian, Fariborz en_US Chen, Zhuo en_US 2022-03-15T12:43:53Z 2022-03-15T12:43:53Z 2020 en_US
dc.description.abstract This thesis is composed of three stand-alone research studies relating to the recent unconventional monetary policy adopted by the Bank of Japan (BOJ). The first study investigates the impact of the BOJ’s policy on stock prices and corporate activities. The empirical results show that the policy has generated heterogenous effects on stock prices. Firms with disproportionately higher BOJ investment experience significantly positive stock returns both in the short term and the long term. Corresponding to the positive price impact, the cost of equity capital reduces and firm value increases. However, further tests fail to find evidence of any real impact. Firms that benefit from a reduction in cost of equity capital do not increase external financing, corporate investment and employment. The concentrated capital structure in Japan and the biased investment scheme adopted may explain this weak policy impact. The second study examines whether and how excess reduction in free float affects stock liquidity. Using the BOJ’s equity purchase program as a natural experiment to tackle endogeneity problems, the results show that firms that experience a larger reduction in free float exhibit a reduction in stock liquidity. The negative effect of free float reduction on stock liquidity survives a battery of robustness tests. Further analyses of the underlying channels show that the number of common shareholders and institutional shareholders in a firm significantly decrease. These findings are consistent with a lack of free floating shares introducing frictions in the process of liquidity provision. The third study examines whether an increase in exchange traded funds (ETF) ownership via indexed investment impedes or improves price efficiency. Utilizing Japan’s ETF purchase program as the identification strategy, empirical tests show that prices of stocks that experience an increase in ETF ownership become less efficient in that they deviate more from a random walk and exhibit longer delays in responding to market information. An increase in ETF ownership is also associated with an increase in post-earnings announcement drift, a decline in analyst coverage, and a reduction in the coefficient of current returns to future earnings. These results together suggest that an excessive increase in ETF ownership curbs information arbitrage activities and results in less informative security prices. en_US
dc.language English
dc.language.iso EN en_US
dc.publisher UNSW, Sydney en_US
dc.rights CC BY-NC-ND 3.0 en_US
dc.rights.uri en_US
dc.subject.other Monetary policy en_US
dc.subject.other Real effects en_US
dc.subject.other Unconventional en_US
dc.subject.other Market frictions en_US
dc.title The Real Effects of Unconventional Monetary Policy and Market Frictions en_US
dc.type Thesis en_US
dcterms.accessRights open access
dcterms.rightsHolder Chen, Zhuo
dspace.entity.type Publication en_US
unsw.accessRights.uri 2022-02-01 en_US
unsw.description.embargoNote Embargoed until 2022-02-01
unsw.relation.faculty Business
unsw.relation.originalPublicationAffiliation Chen, Zhuo, Banking & Finance, Australian School of Business, UNSW en_US
unsw.relation.originalPublicationAffiliation Moshirian, Fariborz , Banking & Finance, Australian School of Business, UNSW en_US School of Banking & Finance *
unsw.thesis.degreetype PhD Doctorate en_US
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