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Do Demographic Changes Affect Risk Premiums? Evidence from International Data

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Author Info
Andrew Ang
Angela Maddaloni

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Abstract

We examine the link between equity risk premiums and demographic changes using a very long sample over the twentieth century for the US, Japan, UK, Germany and France, and a shorter sample covering the last third of the twentieth century for fifteen countries. We find that demographic variables significantly predict excess returns internationally. However, the demographic predictability found in the US by past studies for the average age of the population does not extend to other countries. Pooling international data, we find that, on average, faster growth in the fraction of retired persons significantly decreases risk premiums. This demographic predictability of risk premiums is strongest in countries with well-developed social security systems and lesser-developed financial markets.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9677.

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Date of creation: May 2003
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Handle: RePEc:nbr:nberwo:9677

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G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John Geanakoplos & Michael Magill & Martine Quinzii, 2004. "Demography and the Long Run Behavior of the Stock Market," Levine's Bibliography 122247000000000643, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Mathias Sommer, 2005. "Trends in German households’ portfolio behavior - assessing the importance of age- and cohort-effects," MEA discussion paper series 05082, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
  3. Roberto A. De Santis & Melanie Lührmann, 2006. "On the determinants of external imbalances and net international portfolio flows - a global perspective," Working Paper Series 651, European Central Bank. [Downloadable!]
  4. 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. [Downloadable!] (restricted)
  5. Michael Magill, 2004. "Demography and the Stock Market," Theory workshop papers 658612000000000080, UCLA Department of Economics. [Downloadable!]
  6. Ulrike Malmendier & Stefan Nagel, 2009. "Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?," NBER Working Papers 14813, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. 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. [Downloadable!]
  8. Robert F. Martin, 2005. "The baby boom: predictability in house prices and interest rates," International Finance Discussion Papers 847, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  9. John Geanakoplos & Michael Magill & Martine Quinzii, 2002. "Demography and the Long-run Predictability of the Stock Market," Cowles Foundation Discussion Papers 1380R, Cowles Foundation, Yale University, revised Jul 2004. [Downloadable!]
    Other versions:
  10. Andrea Tamoni & Arie E.Gozluklu & Carlo A.Favero, 2008. "Demographics and fluctuations in Dividend/Price," Working Papers 345, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  11. Gina Nicolosi & Liang Peng, 2004. "Do individual investors learn from their trading experience," Econometric Society 2004 North American Summer Meetings 532, Econometric Society. [Downloadable!]
  12. James Poterba, 2004. "The Impact of Population Aging on Financial Markets," NBER Working Papers 10851, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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