COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 955

"International Diversification of Social and Private Risk:
The U.S. and Japan"

Stephen S. Golub

August 1990

This paper concerns the gains from international trade in risky assets, with an application to the United States and Japan. I examine the role of international financial markets in diversifying the risks associated with the aggregate consumption opportunities of a nation (social risk) and the risks related to individual agents' consumption opportunities (private risk). The main empirical result is that international portfolio diversification between the United States and Japan leads to small reductions in social risk but large reductions in some private risks, especially for corporate profits.