International Risk sharing and Investor Protection: Some Evidence from the EU-15

This note analyzes consumption risk sharing among the EU−15 countries. It is found that the reaction of consumption growth rates to idiosyncratic income growth is too sensitive to be consistent with perfect risk sharing. Some evidence is presented in favor the hypothesis that institutional and legal aspects determine the amount of risk sharing a country can achieve. In particular, countries characterized by high levels of investor protection appear to achieve less consumption insurance