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Population Age Structure and Asset Returns: An Empirical Investigation


  • James M. Poterba


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.

Suggested Citation

  • James M. Poterba, 1998. "Population Age Structure and Asset Returns: An Empirical Investigation," NBER Working Papers 6774, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6774
    Note: AP

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    References listed on IDEAS

    1. 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.
    2. 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.
    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, vol. 50(1), pages 1-53, June.
    4. Hendershott, Patric H., 1991. "Are real house prices likely to decline by 47 percent?," Regional Science and Urban Economics, Elsevier, vol. 21(4), pages 553-563, December.
    5. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    6. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    7. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    8. 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.
    9. 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.
    10. James M. Poterba & Andrew A. Samwick, 1995. "Stock Ownership Patterns, Stock Market Fluctuations, and Consumption," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 295-372.
    11. Alan M. Taylor, 1996. "International Capital Mobility in History: The Saving-Investment Relationship," NBER Working Papers 5743, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Henning Bohn, 2001. "Social Security and Demographic Uncertainty: The Risk-Sharing Properties of Alternative Policies," NBER Chapters,in: Risk Aspects of Investment-Based Social Security Reform, pages 203-246 National Bureau of Economic Research, Inc.
    2. Douglas W. Elmendorf & Louise Sheiner, 2000. "Should America save for its old age? Population aging, national saving, and fiscal policy," Finance and Economics Discussion Series 2000-03, Board of Governors of the Federal Reserve System (U.S.).
    3. Andersson, Björn, 2001. "Portfolio Allocation over the Life Cycle: Evidence from Swedish Household Data," Working Paper Series 2001:4, Uppsala University, Department of Economics.
    4. Lindh, Thomas & Malmberg, Bo, 2002. "Swedish post-war economic development. The role of age structure in a welfare state," Arbetsrapport 2003:4, Institute for Futures Studies.
    5. 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.
    6. Panetta, Ida Claudia, 2006. "Financial markets trend: ageing and pension system reform," MPRA Paper 18391, University Library of Munich, Germany.
    7. Hugo Benitez-Silva, 2000. "A Dynamic Model of Labor Supply, Consumption/Saving, and Annuity Decisions under Uncertainty," Department of Economics Working Papers 00-06, Stony Brook University, Department of Economics.
    8. Alda, Mercedes, 2017. "The relationship between pension funds and the stock market: Does the aging population of Europe affect it?," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 83-97.
    9. 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;The Geneva Association, vol. 30(4), pages 542-564, October.
    10. 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.
    11. 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.
    12. Christophe Boucher, 2003. "Stock Market Valuation : the Role of the Macroeconomic Risk Premium," Finance 0305011, EconWPA.
    13. F. Landis MacKellar, 2000. "The Predicament of Population Aging: A Review Essay," Population and Development Review, The Population Council, Inc., vol. 26(2), pages 365-404.
    14. Carol C. Bertaut & Martha Starr-McCluer, 2000. "Household portfolios in the United States," Finance and Economics Discussion Series 2000-26, Board of Governors of the Federal Reserve System (U.S.).
    15. Michael Hurd & James P. Smith, 2002. "Expected Bequests and Their Distribution," NBER Working Papers 9142, National Bureau of Economic Research, Inc.
    16. Brian McCulloch & Jane Frances, 2001. "Financing New Zealand Superannuation," Treasury Working Paper Series 01/20, New Zealand Treasury.
    17. Narciso, Alexandre, 2010. "The impact of population ageing on international capital flows," MPRA Paper 26457, University Library of Munich, Germany.
    18. repec:dau:papers:123456789/4094 is not listed on IDEAS
    19. Hugo Benítez-Silva, 2003. "The Annuity Puzzle Revisited," Working Papers wp055, University of Michigan, Michigan Retirement Research Center.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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