Time-Varying International Stock Returns and Risk Sharing under Labor Income Risk

摘要

I examine the importance of labor income risk for time-series variability of international stock returns and risk sharing. I find that interactions of stock returns with labor income growth within countries, but not across countries, are significant for explaining the time-varying risk premiums and volatilities of domestic and foreign stock markets. When each investor’s investment opportunity set is expanded to include the human capital of the investor’ own country, in addition to a subset of internationally-traded financial assets, the level of international risk sharing implied by the minimum-variance stochastic discount factors of domestic and foreign investors is drastically lower than the level implied by internationally-traded financial assets only. Time-varying international risk sharing associated with such discount factors, like risk sharing associated with marginal utility growth, is related to the comovement of labor income growth across countries in the last three decades.