Can Risk Be Shared Across Investor Cohorts? Evidence from a Popular Savings Product
Charles A. Dice Center Working Paper No. 2019-17
115 Pages Posted: 16 Jul 2019 Last revised: 19 May 2022
Date Written: May 18, 2022
We study how retail savings products can share market risk across investor cohorts, thereby completing financial markets. Financial intermediaries smooth returns by varying reserves, which are passed on between successive investor cohorts, redistributing wealth across cohorts. Using data on euro contracts sold by life insurers in France, we estimate this redistribution to be large: 0.8% of GDP. We develop and provide evidence for a model in which low investor sophistication, while leading to individually sub-optimal decisions, improves risk sharing by allowing inter-cohort risk sharing.
Keywords: Inter-cohort risk sharing; Life insurers
JEL Classification: G22, G52
Suggested Citation: Suggested Citation