Quantitative Easing and Stock Market Feedback Dynamics: Volatility Asymmetry in the S&P 500 and SOX

The 2008 global financial crisis, triggered by the U.S. subprime mortgage collapse, prompted central banks to adopt Quantitative Easing (QE) policies to stabilize financial markets and stimulate economic recovery. This study investigates the influence of QE on stock market behavior, focusing on feedback trading dynamics and volatility asymmetry in broad-based and sector-specific indices. The results reveal that QE amplifies positive feedback trading, strengthens market trends, and fosters investor overconfidence. Additionally, asymmetric volatility patterns emerge, with negative market shocks exerting a more pronounced effect on volatility than positive ones. These behavioral responses suggest that QE not only supports asset price growth but may also unintentionally reinforce speculative momentum and systemic vulnerability. The findings offer valuable implications for investors and policymakers, emphasizing the psychological consequences of unconventional monetary interventions. By bridging behavioral finance and monetary policy perspectives, the study contributes to a deeper understanding of how QE reshapes investor sentiment and market stability.