Research output: Contribution to journal › Article › peer-review
Equity Market Pricing and Central Bank Interventions: A Panel Data Approach. / Ринкон Эрнандес, Карлос Хоакин.
In: Journal of Risk and Financial Management, Vol. 17, No. 10, 440, 30.09.2024.Research output: Contribution to journal › Article › peer-review
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TY - JOUR
T1 - Equity Market Pricing and Central Bank Interventions: A Panel Data Approach
AU - Ринкон Эрнандес, Карлос Хоакин
PY - 2024/9/30
Y1 - 2024/9/30
N2 - This paper analyzes the effects of central bank interventions via large-scale purchases of government debt securities on the pricing of stock market indices. This study examines the effects of changes in the size of the Federal Reserve’s balance sheet in three intervention scenarios: during the 2008–2013 period, the 2020–2022 period, and in the years between by using the instrumental variables three-stage least squares (3SLS) method for a time series approach, and calculates the effects of these interventions on each index in a fund of funds setup using the panel data strategy. This study confirms that large-scale purchases of government debt securities in response to the Great Recession and COVID-19 crises influenced the pricing of equity markets via their effect on the pricing of treasury bonds, with different degrees of sensitivity of each index to the effects on yields. Although the findings apply to the U.S. market, the results indicate that the pricing of small capitalization indices such as the Russell 2000 are less sensitive to changes in treasury yields caused by central bank interventions than large capitalization indices such as the DJIA. This research contributes to the understanding of financial asset pricing, particularly by identifying price distortions within equity market portfolios.
AB - This paper analyzes the effects of central bank interventions via large-scale purchases of government debt securities on the pricing of stock market indices. This study examines the effects of changes in the size of the Federal Reserve’s balance sheet in three intervention scenarios: during the 2008–2013 period, the 2020–2022 period, and in the years between by using the instrumental variables three-stage least squares (3SLS) method for a time series approach, and calculates the effects of these interventions on each index in a fund of funds setup using the panel data strategy. This study confirms that large-scale purchases of government debt securities in response to the Great Recession and COVID-19 crises influenced the pricing of equity markets via their effect on the pricing of treasury bonds, with different degrees of sensitivity of each index to the effects on yields. Although the findings apply to the U.S. market, the results indicate that the pricing of small capitalization indices such as the Russell 2000 are less sensitive to changes in treasury yields caused by central bank interventions than large capitalization indices such as the DJIA. This research contributes to the understanding of financial asset pricing, particularly by identifying price distortions within equity market portfolios.
KW - COVID-19
KW - Fed’s balance sheet
KW - Great Recession
KW - instrumental variables
KW - quantitative easing
KW - tapering
UR - https://www.mendeley.com/catalogue/63dfcd05-707f-360f-837a-93a444d5b7cf/
U2 - 10.3390/jrfm17100440
DO - 10.3390/jrfm17100440
M3 - Article
VL - 17
JO - Journal of Risk and Financial Management
JF - Journal of Risk and Financial Management
SN - 1911-8066
IS - 10
M1 - 440
ER -
ID: 127656319