Can Risk Be Shared Across Investor Cohorts? Evidence from a Popular Savings Product

72 Pages Posted: 7 Oct 2019

See all articles by Johan Hombert

Johan Hombert

HEC Paris - Finance Department

Victor Lyonnet

Ohio State University (OSU)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2019


This paper shows how one of the most popular savings products in Europe -- life insurance financial products -- shares market risk across investor cohorts. Insurers smooth returns by varying reserves that offset fluctuations in asset returns. Reserves are passed on between successive investor cohorts, causing redistribution across cohorts. Using regulatory and survey data on the 1.4 trillion euro French market, we estimate this redistribution to be quantitatively large: 1.4% of savings value per year on average, or 0.8% of GDP. These findings challenge a large theoretical literature that assumes inter-cohort risk sharing is impossible. We develop and provide evidence for a model in which the elasticity of investor demand to predictable returns determines the amount of risk sharing that is possible. The evidence is consistent with low elasticity, sustaining inter-cohort risk sharing despite predictable returns. Demand elasticity is higher for investors with a larger investment amount, suggesting that low investor sophistication enables inter-cohort risk sharing.

Keywords: Inter-cohort risk sharing, Life insurers

JEL Classification: G22, G32

Suggested Citation

Hombert, Johan and Lyonnet, Victor, Can Risk Be Shared Across Investor Cohorts? Evidence from a Popular Savings Product (September 2019). CEPR Discussion Paper No. DP14029, Available at SSRN:

Johan Hombert (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351

Victor Lyonnet

Ohio State University (OSU) ( email )

Columbus, OH 43210
United States

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