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

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  • Fernández-Amador, Octavio
  • Gächter, Martin
  • Larch, Martin
  • Peter, Georg

Abstract

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 21 (2013)
Issue (Month): C ()
Pages: 54-68

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Handle: RePEc:eee:empfin:v:21:y:2013:i:c:p:54-68

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Web page: http://www.elsevier.com/locate/jempfin

Related research

Keywords: Stock liquidity; Monetary policy; Euro area;

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Cited by:
  1. Vithessonthi, Chaiporn, 2014. "Monetary policy and the first- and second-moment exchange rate change during the global financial crisis: Evidence from Thailand," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 170-194.
  2. Chris Florackis & Alexandros Kontonikas & Alexandros Kostakis‌, . "Stock market liquidity and macro-liquidity shocks: Evidence from the 2007-2009 financial crisis," Working Papers 2013_13, Business School - Economics, University of Glasgow.

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