Social Status, Portfolio Externalities, and International Risk Sharing

Timothy K. Chue ()
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Timothy K. Chue: School of Accounting and Finance, Faculty of Business, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong SAR, China

JRFM, 2024, vol. 17, issue 10, 1-11

Abstract: 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.

Keywords: the spirit of capitalism; social status; portfolio externality; international risk sharing (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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