Demographics and International Investment

Abstract

Population demographics impact both the time-series and cross-section of expected asset returns. A number of theories link the average age of a population to expected market returns. For example, Bakshi and Chen (1994) argue that an older population will demand a higher premium on equity investment because their risk aversion is higher. We argue that, in an international context, population demographics are more likely to reveal information about the risk exposure of a particular country. Our evidence supports the risk hypothesis.

This is the last working paper version of our 1997 Financial Analysts Journal article.

Keywords: global investment, population, international stock returns, asset allocation, active management, risk premium

JEL Classification: G15, G12, G11, J11