International Diversification and Labor Income Risk

38 Pages Posted: 6 Mar 2008 Last revised: 18 Mar 2009

See all articles by Carolina Fugazza

Carolina Fugazza

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Center for Research on Pensions and Welfare Policies

Maela Giofré

University of Turin - Department of Economics and Statistics; CeRP-CCA; Netspar

Giovanna Nicodano

University of Turin - Department ESOMAS; Collegio Carlo Alberto; EGCI; Netspar

Date Written: March 4, 2008

Abstract

Members of an occupational pension plan face the same industry shocks, since membership is based on employment industry. An occupational pension fund might therefore design portfolio composition so as to hedge members' labour income shocks at the industry level. This paper quantifies differences in equilibrium 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 role of occupational pension funds in hedging labour income risk through international equity diversification.

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

JEL Classification: E44, G11, G15

Suggested Citation

Fugazza, Carolina and Giofré, Maela and Nicodano, Giovanna, International Diversification and Labor Income Risk (March 4, 2008). EFA 2008 Athens Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1102234 or http://dx.doi.org/10.2139/ssrn.1102234

Carolina Fugazza (Contact Author)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Center for Research on Pensions and Welfare Policies ( email )

Via Real Collegio, 30
Moncalieri, Turin - Piedmont 10124
Italy

Maela Giofré

University of Turin - Department of Economics and Statistics ( email )

Lungo Dora Siena 100/A
Torino, Turin - Piedmont 10153
Italy

CeRP-CCA ( email )

Via Real Collegio 30
Moncalieri (TO), Turin 10024
Italy

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Giovanna Nicodano

University of Turin - Department ESOMAS ( email )

Turin, 10134
Italy

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano/

Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10121
Italy
390116705006 (Phone)

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano

EGCI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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