A Dynamic Analysis of the Bank of Japan's ETF/REIT Purchase Program

This paper provides a time series analysis of the Bank of Japan (BOJ)'s ETF and REIT purchase program. The program is a part of the BOJ's unconventional monetary policy and has strengthened since the Quantitative and Qualitative Easing (QQE) in April 2013. To the best of our knowledge, the current study is the first attempt at investigating a dynamic aspect of the purchase program. To find factors underlying decisions of the BOJ's purchases, we apply a state space model with explanatory variables obtained by expert knowledge, which is an extension of a logistic regression and enables to predict their timings with high accuracy throughout all periods. Then, we figure out the dynamics of the program's effect on equity and REIT prices by using a different type of state space model. Moreover, we find a profitable rule-based trading strategy that focuses on an effect of the BOJ's purchase on the TOPIX-Nikkei225 spread. Finally, we implement event studies, particularly the price dynamics of ETF and REIT just before and after the purchase