Demographics and International Investments

Population demographics affect both the time-series and the cross-section of expected asset returns. A number of theories link the average age of a population to expected market returns. For example, Bakshi and Chen argue that an older population will demand a higher premium on equity investment because older people are more risk averse than younger people. We contend that, in an international context, population demographics are likely to reveal information about the risk exposure of a particular country. Our evidence supports the risk hypothesis.