Population Aging and Financial Markets : A Cross-Country Study

Abstract

Population aging may have different effects on different assets.

We investigate the effect of population aging on financial

markets by evaluating how population aging affects the size of

asset markets. The regression analysis using a cross-country

data reveals that although aggregate saving rates will decline

significantly as the size of the elderly population continues to

rise, aggregate savings themselves will keep increasing for a

while as the working age population increases their savings in

preparation for the elongated retirement life. The regression

analysis also demonstrates that the proportion of the elderly

population is positively correlated with the size of the bond

market, while the positive relationship with the size of the stock

market is not so evident. Such a finding implies that although a

general asset price meltdown is not likely, some asset markets

will be more adversely affected by population aging.