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Maria Leonor Puga
- 27 May 2026
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2026Details
- Abstract
- The box examines the drivers of euro area investment fund flows into equity markets, with a particular focus on funds investing in currently highly valued US segments. Investment funds play a central role in channelling euro area capital into US equities, making them the key intermediary for assessing investment flows into assets with elevated valuations. Using a BVAR model, the analysis identifies US macroeconomic factors, most notably the AI-driven investment boom, as the dominant driver of recent inflows from the euro area into US equity markets, while deteriorating global risk sentiment has exerted offsetting downward pressure. More accommodative monetary conditions in both the United States and the euro area have supported inflows in recent years. The analysis also shows that flows into US technology equity funds are significantly more sensitive to macroeconomic and monetary shocks, as well as global risk sentiment, than flows into broader equity funds. This makes such funds particularly vulnerable to sudden and disorderly redemptions in the event of adverse developments. The findings highlight the risks to financial stability should these supportive drivers suddenly reverse, particularly through spillovers to euro area markets and wealth effects on euro area investors.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors