Chapter 2. Explanation of relationship between asset classes and age of individual and possible factors which may have an influence on asset returns.

In

2.1. Empirical evidence of relation between stock/bond prices and demography in developed countries.

In the second chapter I will try to explain why the relationship between demographical structure of a country and stock/bond price might exist and possible factors that may have an impact on asset returns. Then I will provide some existing empirical research that have studied this relationship. Change in demographic structure leads to obvious changes on financial markets as individuals falling into different age categories tend to differ in their behavior. And these trends of financial market participant in asset accumulation and their portfolio choices has a straightforward influence on dynamics supply-demand sides on financial markets and this, in turn, has corresponding impact on asset prices. It should be mentioned that there exists «The Life-cycle hypothesis» developed by Franco Modiliagni and his student Brumberg in early 1950s which explains the consumption-savings patterns of individuals over life cycle, stating that consumer smooth consumption and saving decisions over their life time.

Literature.

1. Werner Smolny «Post-war growth, productivity convergence and reconstruction», 1999.

2. Gérard DUMÉNIL and Dominique LÉVY, THE PROFIT RATE: WHERE AND HOW MUCH DID IT FALL? DID IT RECOVER? (USA 1948-2000)

3. David E. Bloom David Canning Jaypee Sevilla, ECONOMIC GROWTH AND THE DEMOGRAPHIC TRANSITION, 2001

4. UN, World Population Prospects: The 2000 Revision.

5. Frank Notestein, Irene B. Taeuber, Ansley J. Coale, Dudley Kirk, and L.K. Kiser, 1944