The effect of quantitative easing on the variance and covariance of the UK and US equity markets

Abiodun Shogbuyi; James M. Steeley

doi:10.1016/j.irfa.2017.07.009

The effect of quantitative easing on the variance and covariance of the UK and US equity markets

Abiodun Shogbuyi, James M. Steeley^*

^*Corresponding author for this work

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Abstract

We examine the impact on the variance-covariance structure of UK and US equity markets of the quantitative easing (QE) operations implemented by the Bank of England (BoE) and the Federal Reserve (Fed). While the theory of portfolio balance suggests that QE operations could affect markets other than those in which the operations occur, prior analysis of these other markets is scarce. We find that while QE operations in general reduced equity volatility, day to day operations generated spikes in volatility in UK equities. We also find that BoE operations increased the covariance between the UK and US equity markets.

Original language	English
Pages (from-to)	281-291
Number of pages	11
Journal	International Review of Financial Analysis
Volume	52
Early online date	8 Jul 2017
DOIs	https://doi.org/10.1016/j.irfa.2017.07.009
Publication status	Published - Jul 2017

Bibliographical note

Keywords

quantitative easing
equity market
variance
co-variance
UK
US

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10.1016/j.irfa.2017.07.009

Easing on the variance and covariance of the UK and US equity markets
© 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 840 KBLicence: CC BY-NC-ND 3.0

Cite this

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abstract = "We examine the impact on the variance-covariance structure of UK and US equity markets of the quantitative easing (QE) operations implemented by the Bank of England (BoE) and the Federal Reserve (Fed). While the theory of portfolio balance suggests that QE operations could affect markets other than those in which the operations occur, prior analysis of these other markets is scarce. We find that while QE operations in general reduced equity volatility, day to day operations generated spikes in volatility in UK equities. We also find that BoE operations increased the covariance between the UK and US equity markets.",

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KW - co-variance

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The effect of quantitative easing on the variance and covariance of the UK and US equity markets

Abstract

Bibliographical note

Keywords

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