Consumption, Stock Returns, and the Gains from International Risk-Sharing / Karen K. Lewis.

Format:

Book

Author/Creator:

Lewis, Karen K.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5410.

NBER working paper series no. w5410

Language:

English

Subjects (All):

Consumption (Economics)--Econometric models.

Consumption (Economics).

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Cambridge, Massachussetts : National Bureau of Economic Research, 1996.

Summary:

Standard theoretical models predict that domestic residents should diversify their portfolios into foreign assets much more than observed in practice. Whether this lack of diversification is important depends upon the potential gains from risk-sharing. General equilibrium models and consumption data tend to find that the costs are small, typically less than «% of permanent consumption. On the other hand, stock returns imply gains that are several hundred times larger. In this paper, I examine the reasons for these differences. I find that the primary differences are due to either: (a) the much higher variability of stocks, and/or (b) the higher degree of risk aversion required to reconcile an international equity premium. On the other hand, the significant differences do not arise treating stock returns as exogenous.

Notes:

Print version record

January 1996.