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Risk sharing and portfolio allocation in EMU


  • Yuliya Demyanyk
  • Charlotte Ostergaard
  • Bent E. Sorensen


This paper investigates whether risk sharing, measured as income and consumption smoothing, among countries in the EU and the European Economic and Monetary Union (EMU) has increased since the adoption of the euro. We ask: Have the recent increase in foreign equity and debt holdings been associated with more risk sharing? Do certain classes of assets (debt, equity, foreign direct investment) provide relatively more or less risk sharing? Do liabilities provide risk sharing differently from assets? Do investments in EMU countries provide more or less risk sharing per euro invested compared to investments in non-EMU countries? Has increased banking integration improved risk sharing? Due to the short span of years since the introduction of the euro, our results are tentative, but they indicate that the monetary union has facilitated risk sharing, although the level of risk sharing is still much below the level found among U.S. states.

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  • Yuliya Demyanyk & Charlotte Ostergaard & Bent E. Sorensen, 2008. "Risk sharing and portfolio allocation in EMU," European Economy - Economic Papers 2008 - 2015 334, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0334

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    Cited by:

    1. Balli, Faruk & Basher, Syed Abul & Balli, Hatice Ozer, 2013. "International income risk-sharing and the global financial crisis of 2008–2009," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2303-2313.
    2. Atanas Christev & Jacques Melitz, 2013. "EMU, EU, Market Integration and Consumption Smoothing," Open Economies Review, Springer, vol. 24(5), pages 789-818, November.
    3. Alcidi, Cinzia & Giovannini, Alessandro & Piedrafita, Sonia, 2014. "Enhancing the Legitimacy of EMU Governance," CEPS Papers 9914, Centre for European Policy Studies.
    4. Balli, Faruk & Rana, Faisal, 2015. "Determinants of risk sharing through remittances," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 107-116.
    5. Balli, Faruk & Basher, Syed Abul & Balli, Hatice Ozer, 2011. "Income insurance and the determinants of income insurance via foreign asset revenues and foreign liability payments," Economic Modelling, Elsevier, vol. 28(5), pages 2296-2306, September.
    6. Agustin S. Benetrix, 2015. "International Risk Sharing and the Irish Economy," The Economic and Social Review, Economic and Social Studies, vol. 46(1), pages 29-49.
    7. Balli, Faruk & Basher, Syed Abul & Rana, Faisal, 2014. "The determinants of the volatility of returns on cross-border asset holdings," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 1-23.
    8. Faruk Balli & Faisal Rana, 2014. "Determinants of risk sharing through remittances: cross-country evidence," CAMA Working Papers 2014-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    9. Belke, Ansgar & Gros, Daniel, 2015. "Banking Union as a Shock Absorber," Ruhr Economic Papers 548, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    10. Claudia M. Buch, 2013. "From the Stability Pact to ESM - What Next?," Chapters,in: Stability of the Financial System, chapter 5 Edward Elgar Publishing.
    11. Philip R. Lane, 2008. "EMU and Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp272, IIIS.
    12. Luque, Jaime & Morelli, Massimo & Tavares, José, 2014. "A volatility-based theory of fiscal union desirability," Journal of Public Economics, Elsevier, vol. 112(C), pages 1-11.
    13. Malik, Samreen, 2015. "Financial-integration thresholds for consumption risk-sharing," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 73-93.
    14. repec:bla:jcmkts:v:55:y:2017:i:6:p:1380-1397 is not listed on IDEAS

    More about this item


    Financial integration; Risk sharing; EU; EMU; Portfolio diversification; Banking market integration; Panel data analysis; Demyanyk; Ostergaard; Sörensen;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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