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International Diversification and Labor Income Risk

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  • Carolina Fugazza

    ()
    (CeRP-Collegio Carlo Alberto, Turin)

  • Maela Giofré

    ()
    (CeRP-Collegio Carlo Alberto, Turin)

  • Giovanna Nicodano

    ()
    (University of Turin and CeRP-Collegio Carlo Alberto, Turin)

Abstract

Members of an occupational pension plan face the same industry shocks, since membership is based on employment industry. An occupational pension fund may therefore design portfolio composition so as to hedge members’ labour income shocks at the industry level. This paper quantifies differences in optimal equity portfolios across investors belonging to different industry-country pairs. We compare these industry-based portfolios to the one that would be optimal for an investor endowed with the average home-country labor income. Our analysis uncovers remarkable heterogeneity across industries in the three investing countries considered - US, Canada and Italy. These results point to a clear-cut role of occupational pension funds in hedging labour income risk through international equity diversification.

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Bibliographic Info

Paper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 67.

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Length: 41 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:crp:wpaper:67

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Related research

Keywords: optimal portfolio choice; labor income risk; industry-specific human capital; occupational pension funds;

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