Can Risk Be Shared across Investor Cohorts? Evidence from a Popular Savings Product

Johan Hombert and Victor Lyonnet

The Review of Financial Studies, 2022, vol. 35, issue 12, 5387-5437

Abstract: We study how retail savings products can share market risk across investor cohorts, thereby completing financial markets. Financial intermediaries smooth returns by varying reserves, which are passed on between successive investor cohorts, thereby redistributing wealth across cohorts. Using data on euro contracts sold by life insurers in France, we estimate this redistribution to be large: 0.8 of GDP. We develop and provide evidence for a model in which low investor sophistication, while leading to individually suboptimal decisions, improves risk sharing by allowing intercohort risk sharing.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: G22 G52 (search for similar items in EconPapers)
Date: 2022
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