Equity markets shrugged off weak economic data and uncertainty in recent weeks and continued to extend their "relentless" gains fueled by the prospect of further stimulus, leaving them more vulnerable to shocks, the Bank of International Settlements (BIS) said on Monday.
The bank, which acts as a hub for the world's central banks, said markets are "under the spell of monetary easing" and warned that increasingly accommodative monetary easing has helped market participants to "tune out" signs of a global growth slowdown.
Indices were lifted to fresh highs off the back of further policy easing, despite a "spate of negative economic news," but such rapid gains have made equity markets increasingly vulnerable, the BIS said.
The BIS also said this "new phase" of monetary easing has helped create an environment that favors risk taking.
"This new phase of monetary policy accommodation in the major currency areas spilled over to financial markets around the world. With yields in core bond markets at record lows, investors turned to lower-rated European bonds, emerging market paper and corporate debt to obtain yield," the report said.
(Read More: Central Banks in Driving Seat for Asia Markets)