Social Status, Portfolio Externalities, and International Risk Sharing

We show that a model of “the spirit of capitalism”, or the concern for social status, can generate a high degree of international risk sharing as measured by asset prices, even when consumption and portfolio holdings exhibit “home bias”. We also show how portfolio externalities can arise in the mode...

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Bibliographic Details
Published in:Journal of risk and financial management 2024-10, Vol.17 (10), p.464
Main Author: Chue, Timothy K.
Format: Article
Language:English
Subjects:
Bias
Brownian motion
Capitalism
Consumption
Externalities (Economics)
Externality
Hedging
Investment analysis
Investors
Risk sharing
Securities markets
Social aspects
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Summary:We show that a model of “the spirit of capitalism”, or the concern for social status, can generate a high degree of international risk sharing as measured by asset prices, even when consumption and portfolio holdings exhibit “home bias”. We also show how portfolio externalities can arise in the model and highlight the caution that one needs in interpreting asset-price-based measures of international risk sharing: in the presence of portfolio externalities, even when the measured degree of risk sharing is perfect, it is still possible for government policies to induce investors to hold better-diversified portfolios and attain higher welfare.
ISSN:1911-8074
1911-8066
1911-8074
DOI:10.3390/jrfm17100464