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International Diversification and Labor Income Risk

Author

Listed:
  • 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.

Suggested Citation

  • Carolina Fugazza & Maela Giofré & Giovanna Nicodano, 2007. "International Diversification and Labor Income Risk," CeRP Working Papers 67, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    • Handle: RePEc:crp:wpaper:67
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    Citations

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    Cited by:

    1. Rohit Malhorta, 2016. "Demystifying Optimal Welfare Weights Controversy From A Social Strategist Perspective," Journal of Social and Economic Statistics, Bucharest University of Economic Studies, vol. 5(2), pages 33-48, DECEMBER.

    More about this item

    Keywords

    optimal portfolio choice; labor income risk; industry-specific human capital; occupational pension funds;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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