Home Bias and International Risk Sharing: Twin Puzzles Separated at Birth

53 Pages Posted: 8 Aug 2005

See all articles by Bent E. Sørensen

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Yi-Tsung Wu

SUNY at Binghamton, Department of Economics

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

Yu Zhu

SUNY at Binghamton, Department of Economics

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

Sorensen, Bent E. and Wu, Yi-Tsung and Yosha, Oved and Zhu, Yu, Home Bias and International Risk Sharing: Twin Puzzles Separated at Birth (June 2005). CEPR Discussion Paper No. 5113. Available at SSRN: https://ssrn.com/abstract=779390

Bent E. Sorensen (Contact Author)

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Yi-Tsung Wu

SUNY at Binghamton, Department of Economics ( email )

Binghamton, NY 13902-6000
United States

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

N/A

Yu Zhu

SUNY at Binghamton, Department of Economics ( email )

Binghamton, NY 13902-6000
United States

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