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Taking home bias seriously: absolute and relative measures explaining consumption risk-sharing

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  • Holinski, N.

    (Macro, International & Labour Economics)

  • Kool, C.J.M.

    (Macro, International & Labour Economics)

  • Muysken, J.

    (Macro, International & Labour Economics)

Abstract

Recent empirical work has shown that ongoing international financial integration facilitates cross-country consumption risk-sharing. While these studies typically employ absolutemeasures to account for a country''s integration in international capital markets, we devise a relative measure that is motivated by the International Capital Asset Pricing Model (I-CAPM) literature. Our measure captures the composition of a country''s international portfolio relative to the world portfolio, which all countries should optimally hold according to the I-CAPM. Using panel-data regression for a group of OECD countries during the financial globalization period 1980-2007, we show that the geography of international portfolioshelps to explain the degree of consumption risk-sharing obtained.
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Suggested Citation

  • Holinski, N. & Kool, C.J.M. & Muysken, J., 2008. "Taking home bias seriously: absolute and relative measures explaining consumption risk-sharing," Research Memorandum 025, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    • Handle: RePEc:unm:umamet:2008025
    DOI: 10.26481/umamet.2008025
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    Cited by:

    1. Muysken, Joan & Ziesemer, Thomas, 2011. "Immigration and growth in an ageing economy - version 2," MERIT Working Papers 2011-037, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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