The impact of macroeconomic variables, demographic structure and compulsory superannuation on share prices: the case of Australia

Abstract

This paper investigates the impact of the population in the 40–64 age band on share prices, using an annual time series data set for the period 1965–2002, and the impact of the superannuation fund on share prices using quarterly time series data for the period 1988 Q1 to 2002 Q4. In accordance with Poterba's suggestion, we have also used real GDP, interest rates and inflation as control variables in both models. Using cointegration and the error correction mechanism we found that the specified models are robust. The variables under study for both models are cointegrated, and long-run relationships exist between the variables. We also found that the population in the 40–64 age band and the superannuation fund positively and significantly affect share prices separately in the long run. Journal of International Business Studies (2006) 37, 687–698. doi:10.1057/palgrave.jibs.8400220

Does an aging population influence stock markets? Evidence from New Zealand

“…Many researchers focus on the risk of a meltdown of higher-risk asset prices (e.g. stock markets) due to the expected aging of the population (Mankiw and Weil, 1989;Poterba, 2001;Poterba, 2004;Huynh et al, 2006;Poterba, 2014).…”

“…The channels described in LCH of lifecycle patterns and demographic swings combined with the effect of risk-averse shifts in an aging population on capital markets, have been a popular research focus over the past few decades (Holtz-Eakin et al, 1993;Bakshi and Chen, 1994;Brooks, 1999;Abel, 2001;Huynh et al, 2006). Poterba (2004) asserts that an aging population can influence the stock market by shifting portfolio decisions from a longer-to a shorter-term focus, as post-retirees start drawing down (rather than adding to) their wealth portfolio.…”

“…Poterba (2004) asserts that an aging population can influence the stock market by shifting portfolio decisions from a longer-to a shorter-term focus, as post-retirees start drawing down (rather than adding to) their wealth portfolio. Huynh et al (2006) found that the relative size of the 40-64 age cohort and Australian superannuation funds have significant effects on share prices. The transmission channels of how aging population affects stock market negatively suggested in the literature can be discussed in the following three ways: (1) LCH, demand for and supply of financial assets channel: higher proportion of aging population relative to working age population  more people move their investments from high risky long-term investment such as stocks to less risky short-term investment such as government bonds  the demand for risky assets decreases but the supply of risky assets increases due to more people selling their high risky assets  stock prices decrease; (2) LCH, demand for and supply of goods/service channel: higher proportion of aging population relative to working age population  less demand for durable and some consumable goods but higher demand for healthcare services  consumption and investment for specific sectors may increase at the cost of the other sectors  the net impact of aging population on aggregate stock prices depend on the constitutes of the stock markets;…”

“…and (3) LCH, demand for and supply of labour force channel: higher proportion of aging population relative to working age population  less active working age population  decrease in labour force in productionless output  less profitability  stock prices decrease (Abel, 2001;Huynh et al, 2006;Werblow et al, 2007;Gordon, 2016).…”

“…iv) The use of monthly data (1991-2017) provides more detailed analysis than the quarterly data used by Huynh et al (2006) to study the relationship between stock prices and demography. The higher-frequency data captures changes more effectively (Frazzini and Pedersen, 2014).…”