IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v39y2004i01p115-142_00.html
   My bibliography  Save this article

Demographics, Stock Market Flows, and Stock Returns

Author

Listed:
  • Goyal, Amit

Abstract

This paper studies the link between population age structure, net outflows (dividends plus repurchases less net issues) from the stock market, and stock market returns in an overlapping generations framework. I find support for the traditional lifecycle models—the outflows from the stock market are positively correlated with the changes in the fraction of old people (65 and over) and negatively correlated with the changes in the fraction of middle-aged people (45 to 64). Changes in population age structure also add significant explanatory power to equity premium regressions. The population structure adds to the predictive power of regressions involving the investment/savings rate for the U.S. economy. Finally, international demographic changes have some power in explaining international capital flows.

Suggested Citation

  • Goyal, Amit, 2004. "Demographics, Stock Market Flows, and Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(1), pages 115-142, March.
  • Handle: RePEc:cup:jfinqa:v:39:y:2004:i:01:p:115-142_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109000003914/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
    2. Elhanan Helpman, 1999. "The Structure of Foreign Trade," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 121-144, Spring.
    3. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
    4. 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.
    5. Hodrick, Robert J, 1992. "Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 357-386.
    6. Goetzmann, William Nelson & Jorion, Philippe, 1993. "Testing the Predictive Power of Dividend Yields," Journal of Finance, American Finance Association, vol. 48(2), pages 663-679, June.
    7. Luis M. Viceira, 2001. "Optimal Portfolio Choice for Long‐Horizon Investors with Nontradable Labor Income," Journal of Finance, American Finance Association, vol. 56(2), pages 433-470, April.
    8. 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.
    9. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, February.
    10. Nelson, Charles R & Kim, Myung J, 1993. "Predictable Stock Returns: The Role of Small Sample Bias," Journal of Finance, American Finance Association, vol. 48(2), pages 641-661, June.
    11. Robin Brooks, 2000. "What Will Happen To Financial Markets When The Baby Boomers Retire?," Computing in Economics and Finance 2000 92, Society for Computational Economics.
    12. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    13. James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November.
    14. George M. Constantinides & John B. Donaldson & Rajnish Mehra, 2002. "Junior Can't Borrow: A New Perspective on the Equity Premium Puzzle," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 269-296.
    15. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
    16. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, April.
    17. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
    18. Leland, Hayne E, 1992. "Insider Trading: Should It Be Prohibited?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 859-887, August.
    19. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
    20. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
    21. Fama, Eugene F. & French, Kenneth R., 1988. "Dividend yields and expected stock returns," Journal of Financial Economics, Elsevier, vol. 22(1), pages 3-25, October.
    22. John Heaton & Deborah Lucas, 2000. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk," Journal of Finance, American Finance Association, vol. 55(3), pages 1163-1198, June.
    23. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kedar-Levy, Haim, 2014. "The potential effect of US baby-boom retirees on stock returns," The North American Journal of Economics and Finance, Elsevier, vol. 30(C), pages 106-121.
    2. Christensen, Peter Ove & Larsen, Kasper & Munk, Claus, 2012. "Equilibrium in securities markets with heterogeneous investors and unspanned income risk," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1035-1063.
    3. Andrew Ang & Angela Maddaloni, 2005. "Do Demographic Changes Affect Risk Premiums? Evidence from International Data," The Journal of Business, University of Chicago Press, vol. 78(1), pages 341-380, January.
    4. Roel van Elk & Marc van der Steeg & Dinand Webbink, 2013. "The effects of a special program for multi-problem school dropouts on educational enrolment, employment and criminal behaviour; Evidence from a field experiment," CPB Discussion Paper 241.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Francisco Gomes & Alexander Michaelides, 2003. "Portfolio Choice With Internal Habit Formation: A Life-Cycle Model With Uninsurable Labor Income Risk," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 729-766, October.
    6. Axel Börsch‐Supan & Alexander Ludwig & Joachim Winter, 2006. "Ageing, Pension Reform and Capital Flows: A Multi‐Country Simulation Model," Economica, London School of Economics and Political Science, vol. 73(292), pages 625-658, November.
    7. Cochrane, John H., 2005. "Financial Markets and the Real Economy," Foundations and Trends(R) in Finance, now publishers, vol. 1(1), pages 1-101, July.
    8. John Y. Campbell & Yeung Lewis Chanb & M. Viceira, 2013. "A multivariate model of strategic asset allocation," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part II, chapter 39, pages 809-848, World Scientific Publishing Co. Pte. Ltd..
    9. John Y. Campbell, 2000. "Asset Pricing at the Millennium," Journal of Finance, American Finance Association, vol. 55(4), pages 1515-1567, August.
    10. Luis M. Viceira, 2001. "Optimal Portfolio Choice for Long‐Horizon Investors with Nontradable Labor Income," Journal of Finance, American Finance Association, vol. 56(2), pages 433-470, April.
    11. Essig, Lothar, 2005. "Precautionary saving and old-age provisions : do subjective saving motives measures work?," Papers 05-22, Sonderforschungsbreich 504.
    12. Hettihewa, Samanthala & Saha, Shrabani & Zhang, Hanxiong, 2018. "Does an aging population influence stock markets? Evidence from New Zealand," Economic Modelling, Elsevier, vol. 75(C), pages 142-158.
    13. Author-Name: John Geanakoplos & Michael Magill & Martine Quinzii, 2004. "Demography and the Long-Run Predictability of the Stock Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(1), pages 241-326.
    14. 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.
    15. Luca Benzoni & Pierre Collin‐Dufresne & Robert S. Goldstein, 2007. "Portfolio Choice over the Life‐Cycle when the Stock and Labor Markets Are Cointegrated," Journal of Finance, American Finance Association, vol. 62(5), pages 2123-2167, October.
    16. Chen, Guodong & Lee, Minjoon & Nam, Tong-yob, 2020. "Forced retirement risk and portfolio choice," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 293-315.
    17. Steven J. Davis & Felix Kubler & Paul Willen, 2006. "Borrowing Costs and the Demand for Equity over the Life Cycle," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 348-362, May.
    18. De Santis, Roberto A. & Lührmann, Melanie, 2006. "On the determinants of external imbalances and net international portfolio flows: a global perspective," Working Paper Series 651, European Central Bank.
    19. Favero, Carlo A. & Gozluklu, Arie E. & Tamoni, Andrea, 2011. "Demographic Trends, the Dividend-Price Ratio, and the Predictability of Long-Run Stock Market Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(5), pages 1493-1520, October.
    20. De Santis, Roberto A. & Lührmann, Melanie, 2009. "On the determinants of net international portfolio flows: A global perspective," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 880-901, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:39:y:2004:i:01:p:115-142_00. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters). General contact details of provider: https://www.cambridge.org/jfq .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.