On the intensity of liquidity spillovers in the Eurozone

K. Smimou and W. Khallouli

International Review of Financial Analysis, 2016, vol. 48, issue C, 388-405

Abstract: This paper seeks to elucidate dimensions and directions of the liquidity spillover phenomenon in the Eurozone equity markets during the global financial crisis of 2007–2008. The research examines questions relevant to the shift-contagion in the Eurozone countries during the time of crisis, as well as the role of a liquidity channel of transmission relaying external shocks among those countries. The findings document the existence of non-linearities in the transmission mechanisms across selected markets; we use a structural model introduced by Favero and Giavazzi (2002) while controlling for interdependence. The result is in line with the crisis-contingent theories that suggest transmission of shocks through an endogenous liquidity channel. Furthermore, we notice a pattern of liquidity spillover from small markets to the German, French, Italian and UK markets even after controlling for monetary policy shocks, and we confirm the persistence of liquidity co-movements, supporting the argument that financial contagion in the Eurozone market was transmitted and intensified via the liquidity channel.

Keywords: Contagion; Liquidity; Spillover; Financial stability; Global financial crisis; Flight to quality; Eurozone equity; Financial integration; Eurozone crisis (search for similar items in EconPapers)
JEL-codes: E3 F21 F3 F42 G10 G12 G14 G15 G22 G33 O47 O52 P4 P51 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521915000460
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:48:y:2016:i:c:p:388-405

DOI: 10.1016/j.irfa.2015.03.009

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().