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Can Risk Be Shared across Investor Cohorts? Evidence from a Popular Savings Product

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  • Johan Hombert
  • Victor Lyonnet

Abstract

We study how retail savings products can share market risk across investor cohorts, thereby completing financial markets. Financial intermediaries smooth returns by varying reserves, which are passed on between successive investor cohorts, thereby redistributing wealth across cohorts. Using data on euro contracts sold by life insurers in France, we estimate this redistribution to be large: 0.8 of GDP. We develop and provide evidence for a model in which low investor sophistication, while leading to individually suboptimal decisions, improves risk sharing by allowing intercohort risk sharing.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Johan Hombert & Victor Lyonnet, 2022. "Can Risk Be Shared across Investor Cohorts? Evidence from a Popular Savings Product," The Review of Financial Studies, Society for Financial Studies, vol. 35(12), pages 5387-5437.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:12:p:5387-5437.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac054
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G52 - Financial Economics - - Household Finance - - - Insurance

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