Working Paper: CEPR ID: DP5113
Authors: Bent E. Sørensen; Yitsung Wu; Oved Yosha; Yu Zhu
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 Codes: F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Home Bias (F14) | International Risk Sharing (G15) |
| Decreasing Home Bias (F29) | Increasing International Risk Sharing (F30) |
| Larger Domestic Stock of Foreign Assets (F21) | Higher Risk Sharing (G52) |