The Bank of Japan’s exchange traded fund purchases: a help or hindrance to market efficiency?

Abstract

We examine the impact of the Bank of Japan’s exchange traded fund (ETF) purchases on two aspects of market efficiency—long-range dependence and price delay—of the TOPIX and Nikkei 225 indices. An increase in ETF purchases results in lower long-range dependence for both indices while the impact on the price delay varies according to index and measure. A sub-period analysis shows that the impact on market efficiency varies over time, with the dominant pattern being a delayed harmful effect, followed by a positive impact and thereafter a negative effect. The implications of these findings are discussed.