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Age distributions and returns of financial assets

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  • Peter S. Yoo
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    Abstract

    This paper explores the relationship between age distribution and asset returns impled by an overlapping-generations asset pricing model. The model predicts that as more individuals reach the age when the increment to their wealth reaches its maximum, asset returns fall. Cross-sectional evidence from the Survey of Financial Characteristics of Consumers and the Surveys of Consumer Finances indicates that individuals aged 45 to 54 have the largest increment to wealth of all age group. Time series estimates confirm that a close link exists between aggregate household wealth and the size of this age group. In accordance with the model presented in this paper, time series estimates of the relationship between asset returns and age distribution suggests a large, statistically significant, negative correlation between the fraction of the population aged 45 to 54 and the returns of several types of assets.

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    File URL: http://research.stlouisfed.org/wp/more/1994-002/
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    Bibliographic Info

    Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1994-002.

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    Date of creation: 1994
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    Handle: RePEc:fip:fedlwp:1994-002

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    Related research

    Keywords: Consumer behavior ; Demography ; Saving and investment;

    References

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    1. Bakshi, Gurdip S & Chen, Zhiwu, 1994. "Baby Boom, Population Aging, and Capital Markets," The Journal of Business, University of Chicago Press, vol. 67(2), pages 165-202, April.
    2. Mankiw, N. Gregory & Weil, David N., 1989. "The baby boom, the baby bust, and the housing market," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 235-258, May.
    3. Weil, David N, 1994. "The Saving of the Elderly in Micro and Macro Data," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 55-81, February.
    4. Shorrocks, A F, 1975. "The Age-Wealth Relationship: A Cross-Section and Cohort Analysis," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 155-63, May.
    5. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
    6. Ray C. Fair & Kathryn M. Dominguez, 1987. "Effects of the Changing U.S. Age Distribution on Macroeconomic Equations," NBER Working Papers 2280, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Christine Lai, 2008. "How Retired Households and Households Approaching Retirement Handle Their Equity Investments in the United States," Journal of Family and Economic Issues, Springer, vol. 29(4), pages 601-622, December.
    2. Marianna Brunetti & Costanza Torricelli, 2010. "Demographics and asset returns: does the dynamics of population ageing matter?," Annals of Finance, Springer, vol. 6(2), pages 193-219, March.
    3. Jamal, A. M. M. & Quayes, Shakil, 2004. "Demographic structure and stock prices," Economics Letters, Elsevier, vol. 84(2), pages 211-215, August.
    4. Lee, King Fuei, 2013. "Demographics and the long-horizon returns of dividend-yield strategies," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(2), pages 202-218.
    5. Marianna Brunetti & Costanza Torricelli, 2007. "The role of demographic variables in explaining financial returns in Italy," Heterogeneity and monetary policy 0701, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
    6. James M. Poterba, 2004. "The impact of population aging on financial markets," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 163-216.

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