Does credit for equity investments feedback on stock market volatility? Evidence from an emerging stock market

This paper investigates the causal relationships between volatility in Saudi stock market and banks credit for equity investments. Our finding indicate there is a bi-directional feedback effects between the stock price volatility and banks credit loans. In other words, volatility in private credit for equity investments influence volatility in stock price and vice versa. A policy implication of such result is that regulating private credit loans in banking sector could reduce the upnormal swings in Saudi Stock prices.