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Baby Boom, Population Aging, and Capital Markets

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  • Bakshi, Gurdip S
  • Chen, Zhiwu

Abstract

This article tests how demographic changes affect capital markets. The life-cycle investment hypothesis states that at an early stage an investor allocates more wealth in housing and then switches to financial assets at a later stage. Consequently, the stock market should rise but the housing market should decline with the average age, a prediction supported in the post-1945 period. The second hypothesis that an investor's risk aversion increases with age is tested by estimating the resulting Euler equation and supported in the post-1945 period. A rise in average age is found to predict a rise in risk premiums. Copyright 1994 by University of Chicago Press.

Suggested Citation

  • Bakshi, Gurdip S & Chen, Zhiwu, 1994. "Baby Boom, Population Aging, and Capital Markets," The Journal of Business, University of Chicago Press, vol. 67(2), pages 165-202, April.
    • Handle: RePEc:ucp:jnlbus:v:67:y:1994:i:2:p:165-202
    DOI: 10.1086/296629
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