Universität Siegen
Fachbereich Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht
Volkswirtschaftliche Diskussionsbeiträge
Barbara Pfeffer
Trade Policy and Risk Diversification
The
paper analyses the influence of trade policies on the investment
decisions of a representative individual. In particular, the increased
uncertainty of future income is considered in the investment behaviour
of individuals. The optimal portfolio-decision of a representative
working individual is analysed in comparison to a non-working
shareholder.
The paper finds an important influence from trade
policy on the saving and investment behaviour of a working individual.
Yet the optimal demand for an asset does not always increases if a
protectionist trade policy is introduced in the corresponding sector as
might be expected. The asset covariance and the labor risk correlation,
especially the working location of the individual, determine the final
results of the investment decision and can even reverse the expected
effect from protection. Moreover, a effective hedge for the income risk
is not possible in most of the observed scenarios.