International diversification and industry-related labor income risk

Carolina Fugazza (), Maela Giofre' () and Giovanna Nicodano

No 192, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: Do equity markets help diversifying away industry-related labor income risk? This paper reconsiders the hedging role of stock markets by focusing on international equity diversification, rather than domestic asset allocation, and on industry wage, rather than individual labor income. We test for differences in implied equilibrium equity portfolios across investors belonging to different industry-country pairs. We compare these industry-based portfolio holdings to the one that is optimal for an investor endowed with the average home-country labor income. Our results resurrect the role of equities in hedging wage risk by uncovering remarkable heterogeneity across industries within each investing country. Our analysis also delivers insights concerning the role of occupational pension funds in designing optimal portfolios for their members.

Keywords: optimal portfolio choice; international diversification; labor income risk; industry-specific human capital; occupational pension funds (search for similar items in EconPapers)
JEL-codes: E44 G11 G15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: International diversification and industry-related labor income risk (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:192

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