Does monetary policy determine stock market liquidity? New evidence from the euro zone
Octavio Fernández-Amador (),
Martin Gächter (),
Martin Larch and
Journal of Empirical Finance, 2013, vol. 21, issue C, 54-68
The recent financial crisis has been characterized by unprecedented monetary policy interventions of central banks with the intention to stabilize financial markets and the real economy. This paper sheds light on the actual impact of monetary policy on stock liquidity and thereby addresses its role as a determinant of commonality in liquidity. Our results suggest that an expansionary monetary policy of the European Central Bank leads to an increase of aggregate stock market liquidity in the German, French and Italian markets. Furthermore, the effect of monetary policy is significantly stronger for smaller stocks, suggesting a non-linear impact of monetary policy on stock liquidity.
Keywords: Stock liquidity; Monetary policy; Euro area (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 G12 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:21:y:2013:i:c:p:54-68
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