The Effect of demographic transition on the equity risk premium in Kenya
Nanua, Kendi Gloria
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While a multitude of research has focused on the effects of demographics on asset prices and returns in developed countries, the same lacks in frontier and emerging countries. The findings and conclusions of such results however cannot be replicated across developing countries since their demographic characteristics are different. In developed countries, the fertility rates are lower than in their counterparts leading therefore to a lower middle-old ratio. Such demographic characteristics affect asset prices and returns differently. Where researchers have considered demographics in developing countries, only output and the impact of macroeconomic variables is considered (see for instance Thuku, Gachanja, & Obere, 201 3). Additionally, over time the only demographic variable under consideration, on its effect on the economy, has been population growth. While population growth is a key variable in analyzing the effect of demographics, there are other variables pertaining to demographics that are occasionally overlooked. Such variables include life expectancy, age structure, dependency ratios and fertility rates. There therefore exists a gap in that, the investigation of the effect of demographics on financial markets in emerging and frontier markets is scarce. This study is an attempt to fill this gap by particularly looking at the effect of demographic variables on the equity risk premium in an emerging market.