Why do stocks and consumption imply such different gains from international risk sharing?

Estimates of the gains to international risk-sharing based upon stock returns tend to find dramatically higher gains than do estimates from consumption-based models. In this paper, I examine the reasons for these differences. Using a common theoretical framework for both approaches, I find that the differences are largely due to the much higher variability of stock returns and its implied intertemporal substitution in marginal utility. Also, contrary to conventional wisdom, the differences in gains from the two approaches do not arise from treating stock returns as exogenous rather than endogenous. (C) 2000 Elsevier Science B.V. All rights reserved.