Quantitative easing (QE) and investing in financial asset markets

  • Abiodun Shogbuyi

Student thesis: Doctoral ThesisDoctor of Philosophy


This study is an empirical investigation into the effects of the Quantitative easing (QE)operations implemented in the aftermath of the financial crisis of 2008 by the BoE and the Fedon the broader financial markets in the UK and US. It avoids a major pitfall of earlier studies thatjust focused on the impact of QE on government bond yields. Considering the channels of theQE policy, it assess the effects of QE operations on bond yields and equity market returns in theUS and UK using an event study before using a GARCH specification augmented with QEintensity and period variables to model the returns and volatility dynamics for the US and UKequity markets primarily, as well as others that did not implement the QE policy at the time. Italso examines the effects of QE on the covariance between the inter-financial (i.e. the UK andUS equity markets) and intra-financial (i.e. the equity and bond markets in the UK and US) usingthe DVECH model. An investigation of the long-run relationship of the US, the UK, France andGermany equity markets, following the QE operations using the multivariate cointegration andVECM techniques is made. We report significant effects on equity and bond market yieldsfollowing the QE announcements and the actual bond purchases. Though there is evidence ofincreased (positive) co-variance between the UK and US equity markets following the actual QEpurchases, this appeared to have been induced by the BoE and not the Fed QE operations.Conversely, the intra-financial markets analyses of the effect of QE on the covariance betweenthe equity and bond markets in the UK and US respectively revealed significant (negative) covariance between the bond and equity markets following the QE operations. No evidence is found of an increasing convergence amongst the US and the UK equity markets, following the QE actions. As the toolkit of monetary policy in the aftermath of the recent financial crisis has been expanded to now include a hitherto unconventional tool in the mode of QE, the findings of this study provide the monetary authorities with an understanding of the broader financial market especially the equity market reaction function to the QE policy and thereby fills this gap in the literature. This thesis adds to several existing literatures on equity market volatility, equity-bond market covariation and equity market cointegration from a QE perspective. As well as adding to a growing body of literature that has examined the broader effects of QE.
Date of Award29 Jun 2017
Original languageEnglish
SupervisorDudley Gilder (Supervisor) & Nathan L Joseph (Supervisor)


  • QE
  • LSAPs
  • Unconventional Monetary Policy
  • Equity Markets
  • Bond Markets
  • Variance
  • Covariance
  • Unit-roots
  • Cointegration
  • VECM

Cite this