Download publication

Working Paper

Institutional investors and home bias in Europe’s Capital Markets Union

Zsolt Darvas and Dirk Schoenmaker find strong support for the hypothesis that the larger the assets managed by institutional investors, the smaller the home bias and thereby the greater the scope for risk sharing.

By: and Date: March 6, 2017 Topic: Finance & Financial Regulation

Integrated capital markets facilitate risk sharing across countries. Lower home bias in financial investments is an indicator of risk sharing.

We highlight that existing indicators of equity home bias in the literature suffer from incomplete coverage because they consider only listed equities. We also consider unlisted equites and show that equity home bias is much higher than previous studies perceived. We also analyse home bias in debt securities holdings, and euro area bias.

We conclude that European Union membership may foster financial integration and reduce information barriers, which sometimes limit cross-country diversification.

We calculate home bias indicators for the aggregate of the euro area as if the euro area was a single country and report remarkable similarity between the euro area and the United States in terms of equity home bias, while there is a higher level of debt home bias in the United States than in the euro area as a whole.

We develop a new pension fund foreign investment restrictions index to control for the impact of prudential regulations on the ability of institutional investors to diversify geographically across borders.

Our panel regression estimates for 25 advanced and emerging countries in 2001-14 provide strong support for the hypothesis that the larger the assets managed by institutional investors (defined as pension funds, insurance companies and investment funds), the smaller the home bias and thereby the greater the scope for risk sharing.

View comments
Read article More on this topic More by this author

Blog Post

A slightly tighter ECB

The ECB’s recent decision on QE was somewhat on the dovish side. Francesco Papadia gives his view on why it is time to start a discussion about reducing the degree of ease of monetary policy.

By: Francesco Papadia Topic: European Macroeconomics & Governance Date: November 15, 2017
Read article More on this topic More by this author

Blog Post

Accounting for true worth: the economics of IFRS9

The introduction in 2018 of forward-looking provisioning for credit losses in EU banks delivers on a key objective in the post-crisis regulatory agenda. This was intended to dampen future lending cycles. For now, banks will be sheltered from the impact on regulatory capital requirements, as the implications for financial stability are far from clear. In any case, the new standards should encourage the disposal of banks’ distressed assets, underpinning the ongoing agenda on NPLs.

By: Alexander Lehmann Topic: Finance & Financial Regulation Date: November 13, 2017
Read article More on this topic

Blog Post

The Eurosystem - Too opaque and costly?

The Eurosystem gets a lot of attention from academics and the media, but they largely focus on its statutory objective of maintaining price stability. There is much less interest in its transparency and operational efficiency. We analyse these issues, and find that the Eurosystem is less transparent and operates with significantly higher costs and headcount than the US Federal Reserve System.

By: Francesco Papadia and Alexander Roth Topic: European Macroeconomics & Governance Date: November 6, 2017
Read article More on this topic More by this author

Blog Post

Euro-area enlargement: a new opening?

8 of the EU27 have not yet joined the Euro, and progress in euro-area enlargement seems to have stalled. Commission President Juncker wants to give new momentum to the process, but the path is full of political and technical hurdles. The Euro is unlikely to have any new members soon.

By: Marek Dabrowski Topic: European Macroeconomics & Governance Date: November 2, 2017
Read article Download PDF More on this topic

Policy Brief

The time is right for a European Monetary Fund

Two of the banking union’s pillars – common European supervision by the European Central Bank and common European resolution by the Single Resolution Fund – are up and running. But the third, common European deposit insurance, is still missing. The authors propose to design the EMF as part of a broader risk-sharing and market-discipline agenda.

By: André Sapir and Dirk Schoenmaker Topic: European Macroeconomics & Governance Date: October 30, 2017
Read article More on this topic More by this author

Blog Post

The capital tax cut debate

How much do workers gain from a capital gains tax cut? CEA chairman Hasset claims the tax cut will cause average household labour income to increase by between $4000 and $9000. Several commentators note this implies that more than 100% of the incidence of the tax is on labour. This question has triggered a heated discussion in the economic blogosphere, which we review here.

By: Silvia Merler Topic: Global Economics & Governance Date: October 30, 2017
Read article Download PDF More on this topic More by this author

Policy Contribution

The missing pieces of the euro architecture

What are the remaining fragilities of the Euro architecture? This policy contribution assesses the institutional reforms put in place during and after the crisis and make some proposals for a coherent economic governance framework to make Europe’s monetary union more resilient.

By: Grégory Claeys Topic: European Macroeconomics & Governance Date: October 26, 2017
Read article More on this topic

Blog Post

Phillips vs. Pass-through, or the changing ECB understanding of inflation

This blog post looks at how the approach of the ECB to inflation has changed over the years. It shows the ECB has moved, over the years, from a small towards a large country approach, giving more weight to the improving employment conditions than to the appreciating exchange rate in deciding its monetary policy moves.

By: Francesco Papadia and Alessandra Marcelletti Topic: European Macroeconomics & Governance Date: October 25, 2017
Read article

Blog Post

An update: sovereign bond holdings in the euro area – the impact of quantitative easing

Since the European Central Bank’s announcement in January 2015 of its quantitative easing programme, national central banks have been buying government and national agency bonds. In this post we look at the effect of QE on sectoral holdings of government bonds, updating calculations that we published initially in May 2016.

By: Pia Hüttl and David Pichler Topic: European Macroeconomics & Governance Date: October 10, 2017
Read article Download PDF

External Publication

European Parliament

The single monetary policy and its decentralised implementation: An assessment

This paper assesses the decentralised implementation of monetary policy by the Eurosystem in terms of its transparency, efficiency and simplicity. Compared to the Fed, the Eurosystem seems to have higher staff numbers and operational costs for similar tasks.

By: Francesco Papadia and Alexander Roth Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: October 4, 2017
Read article More by this author

Opinion

A Jamaican Germany is good for Europe

After a surprising election result, Europe is closely watching German coalition negotiations. A so-called Jamaica coalition of conservatives, liberals and greens is the most likely outcome, but many fear this will be bad for the EU and the Eurozone. Not so, argues Guntram Wolff. In fact, a shift to Jamaica could be good news for Europe.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: September 29, 2017
Read article Download PDF More on this topic

Policy Contribution

A European perspective on overindebtedness

The sequence of crisis and policy responses after mid-2007 was a gradual recognition of the unsustainability of the euro-area policy framework. The bank-sovereign vicious circle was first observed in 2009 and became widely acknowledged in the course of 2011 and early 2012. The most impactful initiative has been the initiation of a banking union in mid-2012, but this remains incomplete and needs strengthening.

By: Nicolas Véron and Jeromin Zettelmeyer Topic: European Macroeconomics & Governance Date: September 28, 2017
Load more posts