Does monetary policy determine stock market liquidity? New evidence from the euro zone |
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| Institution: | 1. Johannes Kepler University of Linz, Department of Economics, Austria;2. Oesterreichische Nationalbank (OeNB), Foreign Research Division, Austria;3. University of Innsbruck, Department of Economics and Statistics, Austria;4. Austrian Financial Market Authority (FMA), Department of Integrated Financial Markets, Austria;5. University of Liechtenstein, Institute for Financial Services; Fürst-Franz-Josef-Strasse, 9490 Vaduz, Liechtenstein;1. Sungkyunkwan University, Seoul, Republic of Korea;2. City University of Hong Kong, Kowloon, Hong Kong;3. University of Southern California, Los Angeles, CA, United States;4. BlackRock, San Francisco, CA, United States;1. Hanqing Advanced Institute of Economics and Finance, Renmin University of China, China;2. School of Finance, Shanghai University of Finance and Economics, China;1. Department of Management Engineering, Istanbul Technical University, Istanbul, Turkey;2. Department of Banking and Finance, Burdur Mehmet Akif Ersoy University, Burdur, Turkey;3. Department of Banking and Finance, University of Zurich, Zurich, Switzerland;4. DCU Business School, Dublin City University, Dublin 9, Ireland |
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| 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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