Impact of demographic changes on equity returns in Kenya

Abstract

Unprecedented changes in demographic structure can have significant impact on real economic activity and more so the capital market. For example; the baby boom era in the U.S, after World War II, was accompanied by a general rise aggregate demand causing an increase in aggregate supply in the economy. On the contrary, Poterba (2001) asserts that the entry of this large cohort into the labor market may have been associated with an increase in aggregate unemployment rate. While it is difficult to state with certainty the casual relationship between an increase in population and equity returns, there is evidence that shifts in demographic structure can be associated to changes in stock returns. According to Chen and Gurdip (1994) a rise in the average age tends to be followed by a rise in the market premium. They attribute this to the life cycle risk aversion hypothesis.