The BOJ's ETF purchases and its effects on Nikkei 225 stocks

Abstract

This paper examines the impacts of the Bank of Japan's (BOJ) exchange-traded funds (ETFs) purchasing program that has been conducted since December 2010. The program is a part of the BOJ's unconventional monetary policy and has accelerated since the introduction of the Quantitative and Qualitative Easing in April 2013. In this study, the influence of underlying stocks is assessed by comparing the performance of the stocks (those included in the Nikkei 225 and others) using a difference-in-difference analysis. We also separate morning and afternoon returns to control for the fact that the BOJ tends to purchase ETFs when performance of the stock market is weak, in the morning session. We find that the Nikkei 225 component stocks' afternoon returns are significantly higher than those of non-Nikkei 225 stocks when the BOJ purchases ETFs. However, the subsample analysis demonstrates that the impact on Nikkei 225 stock returns becomes smaller over time despite the growing purchase amounts. Overall, our results indicate that the cumulative treatment effects on the Nikkei 225 are around 20% as of October 2017.

Do uninformed traders move prices? Evidence from the Bank of Japan's ETF purchasing program

“…Our findings indicate a positive relation between levels of BoJ demand and abnormal returns on the ETF purchase day. These results are consistent with the findings in Harada and Okimoto (2021), who show that Nikkei 225 stocks outperform non‐Nikkei 225 stocks on ETF purchase days.…”

The Bank of Japan as a real estate tycoon: large-scale REIT purchases

“…When a central bank purchases MBSs, these capital-constraint premia will decrease. The BOJ's ETF purchases can increase stock price indexes (Harada and Okimoto, 2019;Charoenwong et al, 2019) through the scarcity channel (Barbon and Gianinazzi, 2019). Although there is no study about REIT purchases, the BOJ may be able to decrease REIT risk premia more than ETF risk premia through an additional capital-constraints channel if the marginal REIT investor is less diversified than the marginal ETF investor.…”

The announcement effects of a change in the Bank of Japan’s ETF purchase program: An event study

“…Second, the policy change surprised investors, as evidenced by news articles, such as [5]. 4 If investors had not been surprised, that is, if they had expected the change, the effects of the change would have been priced in before the announcement; in this case, it would not be worth examining intraday price changes before and after the announcement. Finally, stock prices seemed to substantially react to the announcement.…”

“…Figure 1 shows a clear difference between the daily returns of relevant indexes before and after the BOJ announced that it would stop purchasing Nikkei225-tracking ETFs. Some existing researches have already examined the effects of the program on stock returns (Charoenwong et al [2], Harada and Okimoto [4], Katagiri et al [6] 5 ). Generally, these studies 2 " " 3 Other than these index-tracking ETFs, the BOJ has also purchased ETFs that support firms investing in human and physical capital.…”

“…4 5 Charoenwong et al [2] show that the program has increased stock prices, but that this effect is short-lived. Harada and Okimoto [4] utilized cross-sectional variations in purchase amount and concluded that the program cumulatively boosted the Nikkei225 by around 20%. Regarding the effects of the program on other market variables, see Shirota [9] for liquidity effects and Maeda et al [8] for the effects on stock lending market.…”