Fachbereich Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht
Trade Policy and Risk Diversification
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
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.