European Financial Markets

Jakob de Haan; Sander Oosterloo; Dirk Schoenmaker

doi:10.1017/CBO9780511806230.004

This chapter is part of a book that is no longer available to purchase from Cambridge Core

3 - European Financial Markets

from Part II - Financial Markets

Jakob de Haan ,

Sander Oosterloo and

Dirk Schoenmaker

Show author details

Jakob de Haan: Affiliation:
Rijksuniversiteit Groningen, The Netherlands
Sander Oosterloo: Affiliation:
Ministry of Finance, The Netherlands
Dirk Schoenmaker: Affiliation:
Vrije Universiteit, Amsterdam

Book contents

Get access

Summary

OVERVIEW

This chapter starts off by reviewing the functions that financial markets perform. First, financial markets release information to aid the price-discovery process. Second, markets provide a platform to trade. The main trading mechanisms, i.e., quote-driven and order-driven markets, are discussed. Finally, markets provide an infrastructure to settle trades. The remainder of the chapter describes the main financial markets in the EU (the money market, bond markets, equity markets, and derivatives markets).

The euro money market is the market for euro-denominated short-term funds and related derivative instruments. It consists of various segments, including unsecured deposit contracts with various maturities, ranging from overnight to one year, and repurchase agreements (so-called repos, i.e., reverse transactions secured by securities) also ranging from overnight to one year. Credit institutions account for the largest share of the euro money market. The ECB has a major influence on the money market via its use of various monetary policy instruments (reserve requirements, standing facilities, and open-market operations). There are three main market interest rates for the money market: EONIA (euro overnight index average), EURIBOR (euro interbank offered rate), and EUREPO (the repo market reference rate for the euro).

The bulk of euro-denominated bonds (i.e., debt securities with a maturity of more than one year) is issued by euro-area issuers. Although the share of private-sector securities (corporate bonds) in all euro-denominated debt securities outstanding has risen, securities issued by public authorities (government bonds) still form the most important market segment.

Information

Type: Chapter
Information: European Financial Markets and Institutions , pp. 63 - 106

DOI: https://doi.org/10.1017/CBO9780511806230.004 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Harris, L. E. (2003), Trading and Exchanges: Market Microstructure for Practitioners, An Introductory Textbook to the Economics of Market Microstructure, Oxford University Press, Oxford.Google Scholar

Hull, J. C. (2005), Options, Futures, and Other Derivatives, 6th edition, Prentice Hall, Upper Saddle River (NJ).Google Scholar

Pagano, M. and Thadden, E. (2008), The European Bond Markets under EMU, in: Freixas, X., Hartmann, P., and Mayer, C. (eds.), Handbook of European Financial Markets and Institutions, Oxford University Press, Oxford, 488–518.Google Scholar

Anderson, R. W. and McKay, K. (2008), Derivatives Markets, in: Freixas, X., Hartmann, P., and Mayer, C. (eds.), Handbook of European Financial Markets and Institutions, Oxford University Press, Oxford, 568–596.Google Scholar

Baele, L., Ferrando, A., Hördahl, P., Krylova, E., and Monnet, C. (2004), Measuring Financial Integration in the Euro Area, ECB Occasional Paper 14.

Bailey, R. E. (2005) The Economics of Financial Markets, Cambridge University Press, Cambridge.CrossRef Google Scholar

,Bank for International Settlements (1994), Risk Management Guidelines for Derivatives, BIS, Basel.

Batten, J., Fetherson, T., and Szilagi, P. G. (2004), European Fixed Income Markets: Money, Bonds, and Interest Rate Derivatives, John Wiley & Sons Ltd, Chichester.Google Scholar

Point, Bearing (2007), The Electronic Bond Market – New Perspectives for Electronic Fixed Income Trading, May.

Casey, J. P. (2006), Bond Market Transparency: To Regulate or not to Regulate …, ECMI Policy Brief, Brussels.

,Committee of European Securities Regulators (2008), The Role of Credit-Rating Agencies in Structured Finance, CESR, Paris.

Dunne, P., Moore, M., and Portes, R. (2006), European Government Bond Markets: Transparency, Liquidity, Efficiency, CEPR, London.Google Scholar

,European Central Bank (2004a), The Monetary Policy of the ECB, ECB, Frankfurt am Main.

,European Central Bank (2004b), The Euro Bond Market Study, ECB, Frankfurt am Main, December.

,European Central Bank (2006), Equity Issuance in the Euro Area, Monthly Bulletin, May, 89–99.

,European Central Bank (2007a), Financial Integration in Europe, ECB, Frankfurt am Main.

,European Central Bank (2007b), Euro Money Market Study 2006, ECB, Frankfurt am Main.

,European Central Bank (2007c), The Euro Bonds and Derivatives Markets, ECB, Frankfurt am Main.

,European Central Bank (2007d), Euro Money Market Survey, ECB, Frankfurt am Main.

,European Central Bank (2008a), The Analysis of the Euro Money Market from a Monetary Policy Perspective, ECB Monthly Bulletin, February.

,European Central Bank (2008b), Bond Markets and Long-term Interest Rates in Non-euro Area Member States of the European Union – Statistical Tables, ECB, Frankfurt am Main.

Edwards, A. K., Harris, L. E., and Piwowar, M. S. (2007), Corporate Bond Market Transaction Costs and Transparency, Journal of Finance, 62(3), 1421–1454.CrossRef Google Scholar

,European Commission (2007), European Financial Integration Report 2007, EC, Brussels.

,Financial Stability Forum (2008), Report on Enhancing Market and Institutional Resilience, FSF, Basel.

Foucault, T. and Menkveld, A. J. (2008), Competition for Order Flow and Smart Order Routing Systems, Journal of Finance, 63, 119–158.CrossRef Google Scholar

Goldstein, M. A., Hotchkiss, E., and Sirri, E. (2007), Transparency and Liquidity: A Controlled Experiment on Corporate Bonds, Review of Financial Studies, 20(2), 235–273.CrossRef Google Scholar

Harris, L. E. (2003), Trading and Exchanges: Market Microstructure for Practitioners, Oxford University Press, Oxford.Google Scholar

Harris, L. E. and Piwowar, M. S. (2006), Secondary Trading Costs in the Municipal Bond Market, Journal of Finance, 61(3), 1361–1397.CrossRef Google Scholar

Hartmann, P., Manna, M., and Manzanares, A. (2001), The Microstructure of the Euro Money Market, ECB Working Paper 80.

,International Capital Market Association (2007), European Repo Market Survey, Number 12, conducted December 2006, Zürich, ICMA.

,International Financial Services London (2007), Derivatives 2007, IFSL, London.

Kyle, A. S. (1985), Continuous Auctions and Insider Trading, Econometrica, 53, 1315–1336.CrossRef Google Scholar

Myers, S. and Majluf, N. (1984), Corporate Financing and Investment Decisions when Firms have Information that Investors do not Have, Journal of Financial Economics, 13, 187–221.CrossRef Google Scholar

O'Hara, M. (2003), Presidential Address: Liquidity and Price Discovery, Journal of Finance, 58, 1335–1353.CrossRef Google Scholar

Reilly, A. (2005), Over-the-Counter Derivatives Markets in Ireland – An Overview, CBFSAI Quarterly Bulletin, Dublin, July.

Shiller, R. J. (2003), From Efficient Markets to Behavioral Finance, Journal of Economic Perspectives, 17, 83–104.CrossRef Google Scholar

Wharton, (2006), LSE, NYSE, OMX, Nasdaq, Euronext … Why Stock Exchanges Are Scrambling to Consolidate, Knowledge@Wharton, Wharton School, University of Pennsylvania.

Wolswijk, G. and Haan, J. (2005), Government Debt Management in the Euro Area: Recent Theoretical Developments and Changes in Practices, ECB Occasional Paper 25.

Accessibility standard: Unknown

Accessibility compliance for the PDF of this book is currently unknown and may be updated in the future.