Jeudi 31 janvier 2019
14.30-15.30 - CEPII, 20, avenue de Ségur, 75007 Paris
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Research seminar « Can Risk be Shared Across Investor Cohorts? Evidence from a Popular Savings Product »
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Johan Hombert, Associate Professor at HEC, will present the main findings of his paper "Can Risk be Shared Across Investor Cohorts? Evidence from a Popular Savings Product", co-authored with Victor Lyonnet,Ohio State University.
This paper shows how one of the largest sources of savings in Europe - life insurance investment products - shares market risk across investor cohorts. Insurers smooth returns by varying reserves in order to offset fluctuations in asset returns. Reserves are shared with new investors so changes in reserves imply changes in future returns, causing redistribution across cohorts. Using regulatory and survey data on the 1.4 trillion-euro French market, we estimate redistribution to be quantitatively large: 1.4% of savings value per year on average, i.e., 17 billion euros or 0.8% of GDP. Even though returns smoothing creates predictability, investor flows barely react to predictable returns. These findings challenge a large theoretical literature that assumes cross-cohort risk sharing is impossible. We provide evidence that investors' lack of sophistication explains the inelasticity of flows to predictable returns, sustaining the risk sharing mechanism.
BY INVITATION ONLY
Contact: conferences cepii.fr |
