Quantitative Easing's Impact on Equity Markets: The Implications of Volatility Suppression (Evidence from the S&P 500 Index)

Per Jakob Landin & Ola Angeltvedt

Student thesis: Master thesis


With interest rates at their zero lower bound, Quantitative Easing (QE) has been the Federal Reserve Bank’s (Fed) policy of choice to deal with the recent economic crisis. We examine the impact of the Fed’s massive and rapid expansion of its balance sheet on the S&P 500 index and the possible collateral effect of volatility suppression on equity market risk. This thesis aims to provide more insight into the less discussed consequences of QE’s impact on equity markets. Our empirical results reveal that the “flow-effect” from QE has significantly impacted the stock market since the onset of the unconventional policy in 2009. By employing various time-series regressions, we find that QE has boosted returns, suppressed volatility, and increased the Value at Risk in the index. Considering the broader implications of these findings, they suggest that financial stability risk could be exacerbated as a byproduct of QE. We find indications that the low-interest-rate environment created by the Fed’s unconventional policies combined with intensified market interventions have led to increased risk-seeking behavior among market participants

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2021
Number of pages101
SupervisorsJesper Rangvid