The Time Horizon of Price Responses to Quantitative Easing

Abstract

Studies of how central bank quantitative easing (QE) policies affect asset prices typically look for effects either on the day, or within one or two days, of the QE announcement. Implicit in this methodology is the assumption that QE impacts different asset classes over an identical -- and short -- time horizon. To the contrary, we present strong evidence that QE announcements by the Federal Reserve, the European Central Bank, and the Bank of England impact the prices of different asset classes at different and often longer horizons. By restricting attention to a very short time window around QE announcements, the literature likely understates the effects of QE on asset classes that are less bond-like, which in turn leads to inappropriate conclusions about the effects of QE in securities markets. We show that while QE affects fixed income and currency markets over a short time horizon, it also has large effects on equity, volatility and credit markets when measured over a longer time period.