The side effects of quantitative easing: Evidence from the UK bond market James M. Steeley * Aston Business School, Birmingham B4 7ET, UK article info Article history: Available online 26 November 2014 JEL: G12 G14 E43 E44 E52 Keywords: Quantitative easing Gilts UK bonds Price efficiency Bond investors abstract We examine the returns to UK government bonds before, during and between the phases of quantitative easing to identify the side effects for the market itself. We show that the onset of QE led to a sustained reduction in the costs of trading and removed some return regularities. However, controlling for a wide range of mar- ket activity, including issuance and QE announcements, we find evidence that investors could have earned excess returns after costs by trading in response to the purchase auction calendar. Drawing on economic theory, we explore the implications of these findings for both the efficiency of the market and the costs of government debt management in both the short and long run. © 2014 Elsevier Ltd. All rights reserved. 1. Introduction The UK government bond market (the gilt-edged bond market, or gilts) has been the main financial market within which the Bank of England's Monetary Policy Committee (MPC) has undertaken its programme of asset purchases, funded by central bank money creation, known as Quantitative Easing (QE). By the end of the most recent phase of QE in March 2013, the Bank of England had completed £330 billion of purchases of gilts, amounting to just over one-third of the total nominal stock outstanding. Existing research on the effects of the QE programme in the UK has focussed either directly on the impact on various macroeconomic aggregates, or indirectly on the economic effects by examining the * Tel.: þ44 121 204 3248. E-mail address: j.m.steeley@aston.ac.uk. Contents lists available at ScienceDirect Journal of International Money and Finance journal homepage: www.elsevier.com/locate/jimf http://dx.doi.org/10.1016/j.jimonfin.2014.11.007 0261-5606/© 2014 Elsevier Ltd. All rights reserved. Journal of International Money and Finance 51 (2015) 303e336