Does the Euro affect the dynamic relation between stock market liquidity and the business cycle?

K. Smimou and Wajih Khallouli ()

Emerging Markets Review, 2015, vol. 25, issue C, 125-153

Abstract: Does Eurozone equity market liquidity affect economic growth? If so, how does the Euro currency affect the dynamic relationship between growth and stock market liquidity (macro-liquidity relation) of the Eurozone? We address these questions using data from ten Eurozone countries and the UK. The findings document the predictability role of liquidity proxies on economic growth, suggesting that stock market liquidity influences economic growth. The results reveal that liquidity increases substantially after a structural break realized around the Euro's introduction in Europe, and in all countries except Portugal we find that liquidity improvement coincides with higher growth. During periods of high exchange-rate volatility between currencies (which tend to be periods of high uncertainty and economic convergence), growth becomes highly affected by stock market liquidity movements.

Keywords: Liquidity; Euro currency; Economic growth; European equity market; Eurozone equity; Emerging markets (search for similar items in EconPapers)
JEL-codes: F21 F3 G15 O47 O52 P51 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:25:y:2015:i:c:p:125-153

DOI: 10.1016/j.ememar.2015.07.001

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