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Supplementary Paper Series for the "Assessment" (1) The Effects of the Bank of Japan's ETF Purchases on Risk Premia in the Stock Markets


April 30, 2021
Ko Adachi*1
Kazuhiro Hiraki*2
Tomiyuki Kitamura*3


This paper provides an empirical investigation of the effects of the Bank of Japan's exchange traded funds (ETF) purchases on risk premia in the stock markets. The analysis examines the following two indicators of risk premia: equity risk premium implied by Nikkei 225 option prices, and yield spreads of individual stocks. The former indicator is analyzed at daily frequency, and the latter is analyzed at weekly frequency. The analysis also examines how the effects of ETF purchases vary depending on market conditions and the size of ETF purchases. The results show that the Bank of Japan's ETF purchases have lowering effects on risk premia. The results also suggest that the lowering effects are larger (1) the lower the stock price index relative to its moving average trend, (2) the higher the volatility in the stock market when the stock price index is below its trend, (3) the larger the percentage decline in the stock price index immediately before the purchases, and (4) the larger the size of the purchases.

JEL classification
E52, E58, G10, G12

Monetary Policy, ETF Purchases, Risk Premia, Purchase Effect Function

This paper is a supplement to "Assessment for Further Effective and Sustainable Monetary Easing" released by the Bank of Japan in March 2021.
The authors are grateful to the staff at the Bank of Japan for helpful comments and discussions. The authors are also grateful to Azusa Takagi for excellent research assistance.

  1. *1Monetary Affairs Department, Bank of Japan
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  2. *2Monetary Affairs Department, Bank of Japan
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  3. *3Monetary Affairs Department, Bank of Japan
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