WORKING PAPER

Demographics and International Investment

Claude B. Erb
First Chicago Investment Management Co., Chicago, IL 60670

Campbell R. Harvey
Duke University, Durham, NC 27708
National Bureau of Economic Research, Cambridge, MA 02138

Tadas E. Viskanta
First Chicago Investment Management Co., Chicago, IL 60670

Abstract

Population demographics impact both the time-series and 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 (1994) argue that an older population will demand a higher premium on equity investment because their risk aversion is higher. We argue that, in an international context, population demographics are more likely to reveal information about the risk exposure of a particular country. Our evidence supports the risk hypothesis