Equity Fund Ownership and the Cross-Regional Diversification of Household Risk

Sascha Becker, Mathias Hoffmann and Sascha O. Becker
Authors registered in the RePEc Author Service: Sascha O. Becker

No 2205, CESifo Working Paper Series from CESifo

Abstract: We explore the link between portfolio home bias and consumption risk sharing among Italian regions using aggregated household level information on consumption, income and portfolio holdings. We propose to use data on equity fund ownership to proxy for regional home bias: equity funds are typically diversified at the national or international level and will therefore provide interregional diversification. In assessing the impact of equity fund ownership on interregional risk sharing we distinguish between two dimensions: variation in the share of equity funds in fund-holder's wealth (the intensive margin) and variation in the fraction of households that hold funds (the extensive margin). We find that equity fund ownership is an important determinant of interregional risk sharing. First, diversification incentives qualitatively line up with actually observed portfolio choices: fund holders in regions where households are particularly exposed to region-specific labor income risk hold a larger fraction of their wealth in (out-of-region) funds. Secondly, for a region as a whole, risk sharing increases in both the intensive and the extensive margins of diversification and the two margins reinforce each other. The marginal effect of wider equity fund participation seems particularly strong, suggesting that policies aimed at increasing equity market participation could help foster better interregional risk sharing.

Keywords: consumption risk sharing; regional home bias; survey of household income and wealth; labor income risk; portfolio choice; stock market participation (search for similar items in EconPapers)
JEL-codes: F36 F37 G10 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp2205.pdf (application/pdf)

Related works:
Journal Article: Equity fund ownership and the cross-regional diversification of household risk (2010)
Working Paper: Equity Fund Ownership and the Cross-Regional Diversification of Household Risk (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2205

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().