CEU Electronic Theses and Dissertations, 2025
| Author | Raudonikis, Julius Edvilas |
|---|---|
| Title | Opportunities are Useful to Those who Take Them - How Capital Market Integration Affects Capital Allocative Efficiency in the Eurozone |
| Summary | This thesis explores the relationship between Eurozone capital market integration and capital allocative efficiency, asking whether integration improves the ability of national capital markets to allocate resources toward sectors with rising value-added. Using panel data from 17 Eurozone countries between 2005 and 2024, the study measures allocative efficiency through an elasticity approach and constructs a composite integration index based on six cross-border financial flow indicators sourced from the European Central Bank. Investor risk aversion – identified as a barrier to cross-border investment – is captured using bank-level pricing behavior. Fixed effects regression models reveal three main findings: first, greater integration is associated with higher allocative efficiency; second, risk aversion independently reduces efficiency; third, risk aversion dampens the positive effect of integration on capital allocative efficiency. The analysis further shows that cross-border borrowing, and foreign ownership of corporate debt securities are the most impactful components of integration. These results suggest that while integration improves capital allocation, its benefits are conditional on behavioral and institutional factors. Furthermore, the results show that countries with lower investor risk aversion benefit the most from capital market integration. The thesis contributes to the literature by quantifying these dynamics at each Eurozone country’s level, offers policy implications for accelerating integration and puts an emphasis on the need to consider risk aversion as a significant variable in the progress towards European capital market union. |
| Supervisor | Tomy Lee |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2025/raudonikis_julius.pdf |
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