The Portfolio Rebalance Effect : Measuring the effects of QE on stock returns

Detta är en Master-uppsats från KTH/Entreprenörskap och Innovation


This thesis has identified a gap in literature regarding the effects of quantitative easing (QE) on equities since the financial crisis in 2008. An event study has been conducted to investigate the portfolio rebalance effect stating that assets not regarded as close substitutes to targeted assets under the QE-scheme, e.g. equities, should respond with a lag to new information regarding QE. Also literature suggests that larger stocks should tend to lead smaller stocks. Assuming investors regard larger stocks as safer we aim to test the hypotheses that stocks will respond to QEannouncements containing new, unanticipated information and that larger, safer stocks will lead smaller, more volatile. The responses in the U.S. stock indices S&P 500, its corresponding sectors as well as mid and small cap indices are examined on nine identified events. Results show that stocks respond immediately on the day of a QE-announcement, but also that returns continue to increase the following days after. Also smaller, more volatile stocks have larger average abnormal returns compare to larger, less volatile stocks.

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