The Bank of Japan’s equity purchases and stock illiquidity

Izidin El Kalak*, Woon Sau Leung, Hidenori Takahashi, Kazuo Yamada

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


Using the large-scale index-linked exchange-traded fund (ETF) purchase program of the Bank of Japan (BOJ), we examine the role of unconventional equity-based monetary policies in the market liquidity of the underlying securities. Using a large sample of Japanese stocks, we document a significant increase in stock illiquidity when a firm’s ownership by the BOJ increases. Intensified ETF arbitrage activities partially mediate such effect. The increased illiquidity is concentrated among small and young firms and those whose shares are likely subject to strong buying pressure. Finally, BOJ ownership increases comovement in liquidity and reduces informational efficiency.
Original languageEnglish
Article number100770
Number of pages73
JournalJournal of Financial Markets
Early online date18 Jul 2022
Publication statusE-pub ahead of print - 18 Jul 2022


  • Bank of Japan
  • monetary policy
  • ETF
  • ETF arbitrage
  • stock illiquidity


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