Demographics and asset returns: does the dynamics of population ageing matter?

Abstract

The empirical connection between the population age-structure and financial asset returns has been so far investigated with special focus on the US, whereby weak or disparate results are obtained. This paper aims to assess whether this connection is affected by the demographic dynamics. To this end the analysis is based on a stylized overlapping generation model and on the empirical investigation for Italy, which is experiencing one of the most pronounced ageing in the world and, specifically, steeper than the US one. Following the approach used for the US, stock returns and Government bond yields are regressed over demographic and/or control variables using annual data over 1958-2004. Results for Italy are more clear-cut and thus support the importance of the country-specific age-dynamics in explaining the impact of demographics on financial markets. © 2008 Springer-Verlag

Population age structure and household portfolio choices in Italy

“…Thus, ageing brings about a progressive evolution of financial needs and investment requirements, which may in turn translate into changes in prices and returns of existing financial instruments (Poterba 2001 for US; Brunetti and Torricelli 2008 for Italy) and in the need for new ones (Fornero and Luciano 2004). A lively debate on the financial effects of ageing is ongoing among both academics and practitioners, and has originated a vast literature constituted by both theoretical and empirical contributions.…”

Demographics and Asset Markets: A Survey of the Literature

“…The evidence of the study done by Brunetti and Torricelli [27] also highlights the importance of country specific demographic dynamics in explaining the impact of demographics on financial markets. Italy has experienced rapid population ageing since the 1970s.…”

“…Italy has experienced rapid population ageing since the 1970s. Brunetti and Torricelli [27] thus identify that Italy has a much steeper pronounced ageing and investigate the empirical connection between population ageing dynamics and financial markets using data from 1958-2004. The statistically insignificant estimates using OLS suggest that demographic variables alone cannot explain the dynamics of the financial asset returns.…”

Do demographic changes matter? A cross-country perspective

“…In empirical tests, the outflow from stock markets is positively associated with changes in the age cohort of people older than 65 years, while it is negatively correlated with the middle-aged cohort (4565 years). The inclusion of the capital as a variable depending on the demographic factors allows for a direct relationship between age-structure and financial markets (Brunetti and Torricelli, 2008). In order to address non-stationarity of variables that mainly affect results in this area of research Arnott and Chaves (2012) apply age polynomials.…”