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Institutional investors, financial market efficiency, and financial stability

Author

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  • Davis, E. Philip

    () (Brunel University)

Abstract

Emphasising the scope for further growth in institutional investment, in Europe in particular, this paper focuses on the impact of institutional investment on the efficiency and stability of financial systems. The paper stresses the scope for efficiency gains arising from an increasing role of institutional investors, reflecting - inter alia - their role in improving corporate governance. The paper also argues that institutional investors tend to enhance financial system stability although they may sporadically exacerbate market volatility or liquidity problems. This calls for a close focus of regulators and monetary policy makers on institutional behaviour, while inter alia continuing the shift envisaged in the current EU Pension Funds (IORP) Directive towards a "prudent-person rule" for investment, and focusing closely on the long-term sustainability of guarantees being offered on life policies, annuities and pensions.

Suggested Citation

  • Davis, E. Philip, 2003. "Institutional investors, financial market efficiency, and financial stability," EIB Papers 4/2003, European Investment Bank, Economics Department.
  • Handle: RePEc:ris:eibpap:2003_004
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    Citations

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    Cited by:

    1. Panetta, Ida Claudia, 2006. "Financial markets trend: ageing and pension system reform," MPRA Paper 18391, University Library of Munich, Germany.
    2. Doris Neuberger, 2005. "What’s Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm," Finance 0510001, EconWPA.
    3. Doris Neuberger, 2005. "What’s Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm," Finance 0503001, EconWPA.
    4. Doris Neuberger, 2005. "What’s Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm," Finance 0510003, EconWPA.

    More about this item

    Keywords

    Institutional investment; Financial Systems; Corporate Governance; monetary policies; pension funds;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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