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Population Age Structure and Asset Returns: An Empirical Investigation

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  • James M. Poterba

Abstract

This paper investigates the association between population age structure, particularly the share of the population in the saving years is motivated by the claim that the aging of the in the United States is a key factor in explaining the recent rise in asset values. It also addresses the associated claim that asset prices will decline when this large cohort reaches retirement age and begins to reduce its asset holdings. This paper begins by considering household age-asset accumulation profiles. Data from the Survey of Consumer Finances suggest that while cross-sectional age-wealth profiles peak for households in their early 60s, cohort data on the asset ownership of the same households show a much less pronounced peak. Wealthy households with substantial asset holdings appear to decumulate slowly, if at all, after retirement. This casts doubt on the (excluding defined benefit pension assets) that households control directly. The paper then considers the historical relationship between demographic structure and real returns on Treasury bills, long-term government bonds, and corporate stock. The results do not suggest any robust relationship between demographic structure and asset returns. This is partly due to the limited power of statistical tests based on the few structure and asset returns in the United States and other developed economies. The paper concludes by discussing factors such as international capital flows and forward-looking behavior on the part of market participants that could weaken the relationship between age structure and asset returns in a single nation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6774.

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Date of creation: Oct 1998
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Handle: RePEc:nbr:nberwo:6774

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  1. Poterba, J.M. & Samwick, A.A., 1996. "Stock Ownership Patterns, Stock Market Fluctuations, and Consumption," Working papers 96-2, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Patric H. Hendershott, 1991. "Are Real House Prices Likely to Decline by 47 Percent?," NBER Working Papers 3880, National Bureau of Economic Research, Inc.
  3. Bohn, Henning, 1999. "Will social security and Medicare remain viable as the U.S. population is aging?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 50(1), pages 1-53, June.
  4. Sylvester J. Schieber & John B. Shoven, 1994. "The Consequences of Population Aging on Private Pension Fund Saving and Asset Markets," NBER Working Papers 4665, National Bureau of Economic Research, Inc.
  5. N. Gregory Mankiw & David N. Weil, 1988. "The Baby Boom, The Baby Bust, and the Housing Market," NBER Working Papers 2794, National Bureau of Economic Research, Inc.
  6. James M. Poterba & Andrew Samwick, 2001. "Household Portfolio Allocation over the Life Cycle," NBER Chapters, in: Aging Issues in the United States and Japan, pages 65-104 National Bureau of Economic Research, Inc.
  7. Alan M. Taylor, 1996. "International Capital Mobility in History: The Saving-Investment Relationship," NBER Working Papers 5743, National Bureau of Economic Research, Inc.
  8. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  9. Steven A. Sass & Robert K. Triest, 1997. "Social Security: how social and secure should it be?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 41(Jun), pages 29-63.
  10. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-26, May.
  11. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 90(358), pages 314-29, June.
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Cited by:
  1. Michael Hurd & James P. Smith, 2003. "Expected Bequests and Their Distribution," Working Papers, RAND Corporation Publications Department 03-10, RAND Corporation Publications Department.
  2. Henning Bohn, 1999. "Social Security and Demographic Uncertainty: The Risk Sharing Properties of Alternative Policies," NBER Working Papers 7030, National Bureau of Economic Research, Inc.
  3. Lindh, Thomas & Malmberg, Bo, 2002. "Swedish post-war economic development. The role of age structure in a welfare state," Arbetsrapport, Institute for Futures Studies 2003:4, Institute for Futures Studies.
  4. Hugo Benítez-Silva, 2003. "The Annuity Puzzle Revisited," Working Papers, University of Michigan, Michigan Retirement Research Center wp055, University of Michigan, Michigan Retirement Research Center.
  5. Andersson, Björn, 2001. "Portfolio Allocation over the Life Cycle: Evidence from Swedish Household Data," Working Paper Series, Uppsala University, Department of Economics 2001:4, Uppsala University, Department of Economics.
  6. Dauriol, Julie, 2005. "Les comportements d’accumulation patrimoniale des ménages français : existe-t-il un effet de génération ?," Economics Papers from University Paris Dauphine 123456789/4094, Paris Dauphine University.
  7. Hugo Benitez-Silva, 2000. "A Dynamic Model of Labor Supply, Consumption/Saving, and Annuity Decisions under Uncertainty," Department of Economics Working Papers, Stony Brook University, Department of Economics 00-06, Stony Brook University, Department of Economics.
  8. Christophe Boucher, 2003. "Stock Market Valuation : the Role of the Macroeconomic Risk Premium," Finance, EconWPA 0305011, EconWPA.
  9. Douglas W. Elmendorf & Louise M. Sheiner, 2000. "Should America Save for Its Old Age? Fiscal Policy, Population Aging, and National Saving," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 57-74, Summer.
  10. E Philip Davis, 2005. "Challenges Posed by Ageing to Financial and Monetary Stability*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 30(4), pages 542-564, October.
  11. Narciso, Alexandre, 2010. "The impact of population ageing on international capital flows," MPRA Paper 26457, University Library of Munich, Germany.
  12. Christian Helmenstein & Alexia Prskawetz & Yuri Yegorov, 2002. "Wealth and cohort size: stock market boom or bust ahead?," MPIDR Working Papers WP-2002-051, Max Planck Institute for Demographic Research, Rostock, Germany.
  13. Douglas W. Elmendorf & Louise M. Sheiner, 2000. "Should America save for its old age? Population aging, national saving, and fiscal policy," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-03, Board of Governors of the Federal Reserve System (U.S.).
  14. Brian McCulloch & Jane Frances, 2001. "Financing New Zealand Superannuation," Treasury Working Paper Series 01/20, New Zealand Treasury.
  15. Campello, Murillo & Graham, John R., 2013. "Do stock prices influence corporate decisions? Evidence from the technology bubble," Journal of Financial Economics, Elsevier, vol. 107(1), pages 89-110.
  16. Carol Bertaut & Martha Starr-McCluer, 2000. "Household portfolios in the United States," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-26, Board of Governors of the Federal Reserve System (U.S.).
  17. Panetta, Ida Claudia, 2006. "Financial markets trend: ageing and pension system reform," MPRA Paper 18391, University Library of Munich, Germany.

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