Demographics and Asset Markets: A Survey of the Literature

Abstract

This paper surveys the theoretical and empirical literature examining the effects of population age structure on financial asset prices, including critical reviews of the methodologies used and an evaluation of contradictory results. The survey focuses on the effects of the Baby Boom generation on asset prices, and in particular, the question of the asset meltdown hypothesis (AMH). The existing literature reveals that an asset meltdown may never eventuate nevertheless it remains plausible that ageing of the Baby Boomers will have a significant negative impact on asset prices. The previous studies were based on where the proportion of the old age population is relatively low. With the first Baby Boomers reaching 65 years of age in 2011 this proportion is projected to increase substantially and hence the effect is reinforced. Thus new research is needed to address the unresolved issues given that population ageing has serious policy issues in the developed economies.