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Does mortality improvement increase equity risk premiums? A risk perception perspective

Author

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  • Huang, Rachel J.
  • Miao, Jerry C.Y.
  • Tzeng, Larry Y.

Abstract

Using data for G7 countries over the period from 1950 to 2007, this paper finds that an unexpected shock to the mortality rate is significantly negatively correlated with the equity premium. A one basis point unexpected negative shock to the mortality rate increases both the one-year and five-year equity premiums by 0.54% and 1.66%, respectively. We also demonstrate how financial institutions could use our findings to hedge the risk of mortality-linked securities.

Suggested Citation

  • Huang, Rachel J. & Miao, Jerry C.Y. & Tzeng, Larry Y., 2013. "Does mortality improvement increase equity risk premiums? A risk perception perspective," Journal of Empirical Finance, Elsevier, vol. 22(C), pages 67-77.
    • Handle: RePEc:eee:empfin:v:22:y:2013:i:c:p:67-77
    DOI: 10.1016/j.jempfin.2013.03.002
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    More about this item

    Keywords

    Mortality risk; Equity risk premium; Demography; Risk perception;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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