Home Bias and International Risk Sharing: Twin Puzzles Separated at Birth
53 Pages Posted: 8 Aug 2005
Date Written: June 2005
Abstract
We show that international home bias in bond and equity holdings declined during the late 1990s at the same time as international risk sharing increased. Also, countries with less home bias, on average, tended to obtain more risk sharing in international markets. Using panel data estimations, we demonstrate that less home bias is associated with more international risk sharing when both cross-sectional and time-series dimensions are taken into account. This indicates that lack of risk sharing and international home bias are closely related empirical phenomena.
Keywords: Consumption smoothing, income smoothing, international portfolio diversification
JEL Classification: F36
Suggested Citation: Suggested Citation
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