The impact of macroeconomic variable and demographic structure on share prices - The case of New Zealand

This paper uses quarterly time series data to investigate the impact on New Zealand share prices (from 1990 to 2006) of macroeconomic variables and demography. Following from Poterba (2001), real GDP, interest rates, inflation and the housing price are used in the model. Co-integration and Error-Correction mechanisms show the specified models to be robust, the variables under study are co-integrated and long-run relationships are defined between variables. During the 16 year review period, NZ share prices were significantly affected by demography ? in particular, numbers in the 45-65 age category. The findings of this study are significant and important ? this is the first attempt to quantify the impact of demographic changes (e.g. baby boomers) on share prices in New Zealand. High growth in the NZ share market, its growing integration with the global economy make it an important part of the rapidly growing Asia-Pacific region and increase the importance of this study in providing essential information for policy makers, global investors and financial institutions.