Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153372
Authors: 
Bracke, Thierry
Schmitz, Martin
Year of Publication: 
2008
Series/Report no.: 
ECB Working Paper 938
Abstract: 
Global financial integration unlocks a huge potential for international risk sharing. We examine the degree to which international equity holdings act as a risk sharing device in industrial and emerging economies. We split equity returns into investment income (dividend distribution) and capital gains to investigate which of the two channels delivers the largest potential for risk sharing. Our evidence suggests that net capital gains are a more potent channel of risk sharing. They behave in a countercyclical way, that is they tend to be positive (negative) when the domestic economy is growing more slowly (rapidly) than the rest of the world. Countries with more countercyclical net capital gains experience improved consumption risk sharing. The empirical analysis furthermore suggests that these risk sharing properties of net capital gains have increased through time, in particular in the 1990s and early-2000s, on the back of a declining equity home bias and financial market deepening.
Subjects: 
consumption smoothing
Cross-Border Investment
International portfolio diversification
International risk sharing
Valuation effects
JEL: 
F21
F30
F36
Document Type: 
Working Paper

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