The impact of bank money on stock market integration: evidence from the Eurozone

Messaoud Chibane, Amadeus Gabriel and Gabriel Giménez Roche

The European Journal of Finance, 2024, vol. 30, issue 18, 2137-2156

Abstract: This paper explores the impact of monetary policy on the integration of the equity markets of the five largest economies of the Eurozone. We show that a rise in leverage and accommodating monetary policies significantly affects the probability of simultaneous stock market crashes. Moreover, we find that an increasing loan-to-base ratio divergence has a destabilizing effect on equity markets. Our findings are instrumental for international investors, who might operate under the assumption that Eurozone stock markets exhibit stable correlations during non-crisis periods, bolstered by the prevailing monetary regime. We suggest implementing a probability threshold as a macroprudential tool to manage latent correlations and ensure effective risk management.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:30:y:2024:i:18:p:2137-2156

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DOI: 10.1080/1351847X.2024.2355104

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