Asset Pricing Implications of Demographic Change

94 Pages Posted: 11 May 2011 Last revised: 12 Oct 2018

See all articles by Thomas Andreas Maurer

Thomas Andreas Maurer

The University of Hong Kong; Washington University in St. Louis - John M. Olin Business School; London School of Economics & Political Science (LSE)

Date Written: October 5, 2018

Abstract

I solve an overlapping generations model with stochastic birth and death rates in general equilibrium. I provide sufficient conditions so that the interest rate is decreasing in the birth and increasing in the death rate. If preferences are non-time-separable, stochastic changes in birth and death rates are priced in financial markets and the equity premium is increasing in the birth and decreasing in the death rate. Demographic changes generate a positive and sizable bond term premium and time series variation in the interest rate and equity premium. Using a balanced panel of 18 countries from 1981 to 2011, I document that the qualitative results in the model are consistent with the data.

Keywords: baby boom, demographic, transition, uncertainty, overlapping generations, intertemporal consumption choice, long run risk, general equilibrium

JEL Classification: G11, G12, G17, D51, D91

Suggested Citation

Maurer, Thomas Andreas, Asset Pricing Implications of Demographic Change (October 5, 2018). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1836483 or http://dx.doi.org/10.2139/ssrn.1836483

Thomas Andreas Maurer (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
Hong Kong

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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