Authors: Dimitris Kenourgios, Ioannis Tsakalos, Efthymios Roumpis

Title: The effects of quantitative easing on the correlations among asset classes

Abstract

This paper investigates the correlations between asset classes during the quantitative easing (QE) programs launched by the U.S. Federal Reserve and the European Central Bank. Since, there are a number of channels through which QE might be expected to affect the behavior of investment community, including policy signaling, portfolio rebalancing, and liquidity effects, we attempt to quantify the effects of these QE programs by focusing on the changes in assets cross correlations. For this reason, we use the Dynamic Conditional Correlation (DCC) model to examine dynamics in the correlation of returns between asset classes. The empirical findings indicate a spillover impact of QE across asset classes and suggest that these correlations differ by QE periods.