The effects of Large Scale Asset Purchases on prices depend on the elasticity of aggregate demand for those assets. This aggregate elasticity reflects a combination of potentially heterogeneous elasticities among investors. In this project, we document how Quantitative Easing (QE) conducted by the ECB affected asset prices, and how demand elasticities vary across investor types. Given these heterogeneous elasticities, the effects of QE on prices are smaller in magnitude for securities held more by more elastic investors. As purchases unfold over time, the residual investor base becomes more inelastic. This evidence suggests that QE may have interesting dynamic implications, and that the effects of the policy may be convex rather than linear. In the final part of the project, we investigate spillover effects to other assets due to investors' rebalancing.
Equity-based compensation is a pervasive feature of managerial incentives among large U.S. corporations. We document that cross-sectional differences in managerial compensation engender heterogeneity in how firm investment responds to stock market fluctuations. Following an increase in aggregate returns, firms whose CEO's firm-specific wealth is more exposed to firm returns increase investment by less relative to their less exposed counterparts. Following an increase in aggregate volatility, controlling for first moment changes, firms whose CEO's firm-specific wealth is more exposed to firm risk reduce investment by less relative to their less exposed counterparts. Taken together, our findings document novel real effects of compensation schemes, and uncover a novel source of heterogeneity in the transmission mechanisms of aggregate shocks.