Investors would be pushed to hold on to more cash rather than place them in risky investments, if one follows the precepts of quantitative easing. This policy would blunt its impact on a country's monetary policy.
This is known as the portfolio rebalancing channel, which is the drive behind quantitative easing on the assumption that purchasing government bonds would lower interest rate levels and invite investors to push their holdings with riskier investments such as stocks. This is supposed to boost investments and promote greater consumption.
The assumption though is losing credence as many investment portfolios based on this economic thought has either lost or declined in value recently.
Under regular circumstances, government bonds and shares of stock would play complementary asset roles, as government bonds would allow longer holding of shares of stock under a specific range of risk allowed. Despite both assets being subject to volatility, putting them together in a portfolio would help blunt sudden changes in value in the long run.
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