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The side-effects of Quantitative Easing: Evidence from the UK Bond Market

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Abstract

We examine the returns to UK government bonds before, during and between the phases of quantitative easing to identify the side effects for the market itself. We show that the onset of QE led to a sustained reduction in the costs of trading and removed some return regularities. However, controlling for a wide range of market activity, including issuance and QE announcements, we find evidence that investors could have earned excess returns after costs by trading in response to the purchase auction calendar. Drawing on economic theory, we explore the implications of these findings for both the efficiency of the market and the costs of government debt management in both the short and long run.

Acceptance Date Nov 26, 2014
Publication Date Nov 26, 2014
Publicly Available Date Mar 29, 2024
Journal Journal of International Money and Finance: theoretical and empirical research in international economics and finance
Print ISSN 0261-5606
Publisher Elsevier
Pages 303 - 336
DOI https://doi.org/10.1016/j.jimonfin.2014.11.007
Keywords Quantitative easingGiltsUK bondsPrice efficiencyBond investors
Publisher URL https://doi.org/10.1016/j.jimonfin.2014.11.007

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