Abstract
I develop and estimate an asset pricing model with global institutional investors and home-biased retail investors. International risk-sharing depends on three aspects of institutional investment: mandate coverage, risk-bearing capacity, and cross-country return correlation. The market-wide local risk premium decomposes into an institutional local risk premium, governed by institutional investors’ risk-bearing capacity, and a retail local risk premium, governed by retail investors’ risk-bearing capacity. I estimate the model using individual stock returns and global institutional ownership across 41 economies. Both local risk premia are economically important across a wide range of markets and exhibit distinct time-series dynamics. Cross-market variation in the institutional local risk premium reflects differences in institutional risk-bearing capacity and cross-country return correlation, while stock-level institutional ownership affects risk premia by shaping factor exposures.