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The Bank of Japan's equity purchases and stock illiquidity

El Kalak, Izidin ORCID:, 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. 10.1016/j.finmar.2022.100770

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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.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Elsevier
ISSN: 1386-4181
Date of First Compliant Deposit: 15 July 2022
Date of Acceptance: 12 July 2022
Last Modified: 03 May 2023 08:15

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