Does monetary policy determine stock market liquidity? New evidence from the euro zone

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Reference

Fernández-Amado, O., Gächter, M., Larch, M., & Peter, G. (2013). Does monetary policy determine stock market liquidity? New evidence from the euro zone. Journal of Empirical Finance, 21, 54–68. (ABDC: A; ABS: 3; ISI: 1.489; VHB: B)

Publication type

Refereed Journal Article

Abstract

The recent financial crisis has been characterized by unprecedentedmonetary policy interventions of central bankswith the intention to stabilize financial markets and the real economy. This paper sheds light on the actual impact ofmonetary 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.

Persons

Organizational Units

  • Institute for Financial Services
  • Chair in Business Administration, Banking and Financial Management