Do Demographic Changes Affect Risk Premiums? Evidence from International Data

We examine the link between equity risk premiums and demographic changes using a very long sample over most of the twentieth century for the US, Japan, UK, Germany and France, and a shorter sample from 1970-1998 for fifteen countries. We find that demographic variables do 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, increases in the fraction of retired persons decrease risk premiums