The Impact Of The Change In Population Age Structure On Financial Markets

With the development of economy and society, age structure is changing in every country, especially in the emerging market countries like China and India which are experiencing a dramatic demographic transition. Since the Japan’s economy take-off and the East Asian Miracle in the last century, researchers began to investigate the effect of the population age structure behind the economic growth. The economic literature on demographic find that population age structure have an impact on economic growth by affecting lots of economic variables, such as, consumption, saving, investment, import and export, labor supply. However, the researches about the impact of demographic changes are limited. On the basis of previous studies, this paper tried to investigate what effects the population age structure can bring to banks, stock market, bond market, and find the mechanisms and means by which changes in age structure affect the financial market.This paper firstly introduces the researches on the effect of age structure on economic growth, household portfolio choice, financial markets. Then we summarize the mechanism by which age structure affect the financial market. After that, we use the financial, population and economic data from the World Bank and the panel techniques to assess demographic impacts on financial markets. The analysis consists of two parts:1. Use the baseline model and further robustness to assess the demographic impacts on financial markets.2. We distinguish the effect on financial markets in high income countries with it in low income countries.The empirical analysis suggests that age structure has different effects on different financial markets, the middle-aged population is favorable to stock market, and the aged population have a negative impact on stock market and a positive effect on bond market. This means that if demographic structure is middle-type, not only it can provide demographic dividend for economic growth but also it can create a favorable opportunity for stock market. But the ageing is of benefit to bond market and has a negative effect on stock market. We also note that the effect in high income countries is more significant than that in low income countries. However, the realization of the favorable effects requires an appropriate economic and social policy environment. A good demographic structure is just provides a advantageous potentiality or an opportunity. Therefore, our government need to create a good environment through actively promote the reform of financial markets; constantly improve the financial system and the social security system. At the same time, the government should adjust the family planning policy and the retirement system in order to weaken the negative impact brought by rapid ageing.