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International Financial Integration and Consumption Risk Sharing

Aidan Corcoran

Abstract This paper tests the importance of international financial assets and liabilities for consumption risk sharing in a general framework which allows for separate effects of equity and debt holdings as well as country-specific sensitivity to aggregate risk. Integration into both the international equity and debt markets is found to be an important determinant of risk sharing for OECD countries over the period 1987-2004, while integration into international equity markets is found to be a robust determinant of risk sharing for emerging and developing countries over the period 1987-2003.

JEL: F36, F41, G15
Keywords: consumption smoothing; financial integration; risk sharing; international portfolio diversification; international business cycles.

Last updated 28 August 2014 by IIIS (Email).