Demographic Structure And Asset Returns
This paper investigates the association between population age structure, particularly the share of the population in the "prime saving years" (40 to 64), and the returns on stocks and bonds. The paper is motivated by recent claims that the aging of the "baby boom" cohort is a key factor in explaining the recent rise in asset values, and by predictions that asset prices will decline when this group reaches retirement age and begins to reduce its asset holdings. This paper begins by considering household age-asset accumulation profiles. Data from repeated cross sections of the Survey of Consumer Finances suggest that, whereas age-wealth profiles rise sharply when households are in their thirties and forties, they decline much more gradually when households are in their retirement years. When these data are used to generate "projected asset demands" based on the projected future age structure of the U.S. population, they do not show a sharp decline in asset demand between 2020 and 2050. The paper considers the historical relationship between demographic structure and real returns on Treasury bills, long-term government bonds, and corporate stock, using data from the United States, Canada, and the United Kingdom. Although theoretical models generally suggest that equilibrium returns on financial assets will vary in response to changes in population age structure, it is difficult to find robust evidence of such relationships in the time series data. This is partly due to the limited power of statistical tests based on the few "effective degrees of freedom" in the historical record of age structure and asset returns. These results suggest caution in projecting large future changes in asset values on the basis of shifting demographics. Although the projected asset demand does display some correlation with the price-dividend ratio on corporate stocks, this does not portend a sharp prospective decline in asset values, because the projected asset demand variable does not fall in future decades. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 83 (2001)
Issue (Month): 4 (November)
|Contact details of provider:|| Web page: http://mitpress.mit.edu/journals/ |
|Order Information:||Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535|
When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:83:y:2001:i:4:p:565-584. 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: (Karie Kirkpatrick)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.