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The Impact of International Portfolio Composition on Consumption Risk Sharing

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  • N. Holinski
  • C.J.M. Kool
  • J. Muysken

Abstract

Recent empirical work has shown that ongoing international financial integration facilitates cross-country consumption risk-sharing. These studies typically find that countries with high equity home bias exhibit relatively low international consumption risk sharing. We extend this line of research and demonstrate that it is not only a country’s equity home bias that prevents consumption risk sharing. In addition, the composition of a country’s foreign asset portfolio plays an important role. Using panel-data regression for a group of OECD countries over the period 1980-2007, we show that foreign investment bias has additional explanatory power for consumption risk sharing.

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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 11-20.

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Length: 33 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:use:tkiwps:1120

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Keywords: international financial integration; foreign investment bias; geography of international investment; equity home bias; international portfolio diversification;

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Cited by:
  1. Hevia, Constantino & Serven, Luis, 2013. "Partial consumption insurance and financial openness across the world," Policy Research Working Paper Series 6479, The World Bank.

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