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Part V Fostering Retail and Institutional Investment, 18 Institutional Investors and Development of Europe’s Capital Markets

Zsolt Darvas, Dirk Schoenmaker

From: Capital Markets Union in Europe

Edited By: Danny Busch, Emilios Avgouleas, Guido Ferrarini

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 18 April 2024

Credit risk — Capital markets

This chapter investigates the role of institutional investment in developing capital markets. It also examines the role of institutional investment in risk sharing. The contribution of institutional investment to risk sharing depends on: the size of institutional investment; the degree of geographical diversification of portfolios, and the composition of assets (equities vs bonds) held. The chapter investigates these three aspects of financial integration in the EU's Capital Markets Union and assesses the prospects for increased risk sharing in the EU. The main hypothesis is that the larger the assets managed by institutional investors, the smaller the home bias and thereby the larger the scope for risk sharing, ceteris paribus. The analysis will focus on portfolio equity home bias.

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