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Banks, Financial Markets and International Consumption Risk Sharing

  • Markus Leibrecht
  • Johann Scharler

In this paper we empirically explore how characteristics of the domestic financial system in uence the international allocation of consumption risk using a sample of OECD countries. Our results show that the extent of risk sharing achieved does not depend on the overall development of the domestic financial system per se. Rather, it depends on how the financial system is organized. Speciffcally, we find that coun- tries characterized by developed financial markets are less exposed to idiosyncratic risk, whereas the development of the banking sector contributes little to the inter- national diversification of consumption risk.

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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2010-15.

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Length: 25 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:jku:econwp:2010_15
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Web page: http://www.econ.jku.at/

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  1. Alicia García-Herrero & Francisco F. Vázquez, 2007. "International Diversification Gains and Home Bias in Banking," IMF Working Papers 07/281, International Monetary Fund.
  2. Fratzscher, Marcel & Imbs, Jean, 2009. "Risk sharing, finance, and institutions in international portfolios," Journal of Financial Economics, Elsevier, vol. 94(3), pages 428-447, December.
  3. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  4. Agnès Bénassy-Quéré & Maylis Coupet & Thierry Mayer, 2007. "Institutional Determinants of Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 30(5), pages 764-782, 05.
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  6. Sorensen, Bent E. & Wu, Yi-Tsung & Yosha, Oved & Zhu, Yu, 2007. "Home bias and international risk sharing: Twin puzzles separated at birth," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 587-605, June.
  7. Obstfeld, Maurice, 2004. "External Adjustment," Center for International and Development Economics Research, Working Paper Series qt7bw468wx, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  8. Michael J. Artis & Mathias Hoffmann, 2008. "Financial Globalization, International Business Cycles and Consumption Risk Sharing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 447-471, 09.
  9. Franklin Allen & Laura Bartiloro & Oskar Kowalewski, 2006. "The Financial System of the EU-25," Chapters, in: Financial Development, Integration and Stability, chapter 7 Edward Elgar.
  10. Maurice Obstfeld, 1994. "Are Industrial-Country Consumption Risks Globally Diversified?," NBER Working Papers 4308, National Bureau of Economic Research, Inc.
  11. Buch, Claudia M. & DeLong, Gayle, 2004. "Cross-border bank mergers: What lures the rare animal?," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2077-2102, September.
  12. Mathias Hoffmann & Thomas Nitschka, 2009. "Securitization of Mortgage Debt, Asset Prices and International Risk Sharing," CESifo Working Paper Series 2527, CESifo Group Munich.
  13. Imbs, Jean, 2006. "The real effects of financial integration," Journal of International Economics, Elsevier, vol. 68(2), pages 296-324, March.
  14. Mathias Hoffmann & Iryna Shcherbakova-Stewen, 2011. "Consumption Risk Sharing over the Business Cycle: The Role of Small Firms' Access to Credit Markets," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1403-1416, November.
  15. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  16. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
  17. Artis, Michael J & Hoffmann, Mathias, 2007. "Declining Home Bias and the Increase in International Risk Sharing: Lessons from European Integration," CEPR Discussion Papers 6617, C.E.P.R. Discussion Papers.
  18. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
  19. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
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