Do Demographic Changes Affect Risk Premiums? Evidence from International Data

43 Pages Posted: 16 May 2003

See all articles by Andrew Ang

Andrew Ang

BlackRock, Inc

Angela Maddaloni

European Central Bank (ECB)

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Date Written: May 2003

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.

Suggested Citation

Ang, Andrew and Maddaloni, Angela, Do Demographic Changes Affect Risk Premiums? Evidence from International Data (May 2003). NBER Working Paper No. w9677, Available at SSRN: https://ssrn.com/abstract=406049

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Angela Maddaloni

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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