Portfolio balance effects and the Federal Reserve's large-scale asset purchases

Purpose Whereas much of previous literature focuses upon the impact on yields from the Federal Reserve's large-scale asset purchases (LSAPs), the purpose of this paper is to study the changes to expected returns. Design/methodology/approach This empirical investigation offers support for changes to risk premia coincident with LSAPs. Findings For both equity and bonds, the authors find evidence for supply/demand LSAPs effects; the equity effects are consistent with a substitution effect from bonds to equities, whereas the bond effects appear to be an anomaly. Originality/value The findings represent new insight for weighing the efficacy and identifying the scope of LSAPs.