Do financial markets react to emerging economies' asset purchase program? Evidence from the COVID-19 pandemic period

We employ the daily data on bond yield, stock return, and exchange rate to explore their reaction to the large-scale asset purchase program for 8 emerging market economies during the COVID-19 pandemic period. Using event study analysis, we find that: (1) out of 8 emerging economies, 6 economies' financial markets react to the asset purchase announcements. (2) Most economies witnessed a rise in stock return, and a fall in the yield rate. (3) 2 economies witnessed currency appreciation, while 3 economies experience currency depreciation. Overall, the asset purchase announcements have a mixed effect on the stock, bond, and foreign exchange markets. Hence, these should be included in the central bank's toolbox as complementary instruments applied to address certain unprecedented economic circumstances.

Automated summary

This study examines the reaction of financial markets in eight emerging market economies to large-scale asset purchase programs during the COVID-19 pandemic period. The findings suggest that stock returns generally increased and yields decreased in response to the asset purchase announcements. Currency appreciation was observed in two economies, while currency depreciation occurred in three economies. Overall, the asset purchase announcements had mixed effects on the stock, bond, and foreign exchange markets.