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.