Working Paper: NBER ID: w9677
Authors: Andrew Ang; Angela Maddaloni
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.
Keywords: No keywords provided
JEL Codes: G12; G15; J10; P46
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in the fraction of retired persons (J26) | decrease in risk premiums (G19) |
| demographic changes (J11) | risk premiums (G19) |
| faster growth in the fraction of retired persons (J26) | decrease in risk premiums (G19) |
| increase in the retired proportion of the population (J26) | decrease in expected returns (G17) |
| demographic predictability of risk premiums (J11) | influenced by social security benefits and financial market participation (H55) |
| changes in the average age of the population (J11) | no forecasting power in international data (F37) |