Download - Canadian Institute of Actuaries

Using data from 16 developed countries, the findings show that an increase in the share of the population under age 35 depresses stock prices, as does an increase ...... Table 3.2: Sources of Data for Empirical Analysis. Data. Canada. United States. Element. House Prices. Teranet and. Zillow. National Bank from Aug. 2008.
706KB Sizes 2 Downloads 137 Views
Population Aging, Implications for Asset Values, and Impact for Pension Plans: An International Study Phase 2 Final Report

February 2018

Population Aging, Implications for Asset Values, and Impact for Pension Plans: An International Study Phase 2 Final Report

AUTHORS

Doug Andrews Steve Bonnar

SPONSORS

Society of Actuaries Canadian Institute of Actuaries Institute and Faculty of Actuaries

Document 218014

Caveat and Disclaimer The opinions expressed and conclusions reached by the authors are their own and do not represent any official position or opinion of the Society of Actuaries, Canadian Institute of Actuaries, or the Institute and Faculty of Actuaries or their members. The organizations makes no representation or warranty to the accuracy of the information. Copyright © 2018 All rights reserved by Doug Andrews and Steve Bonnar

Contents 1 Introduction

4

2 Literature Review Regarding the Connection between Demographic Factors and Asset Class Returns/Prices 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Demographic Factors Used as Independent Variables . . . . . 2.3.1 Age Intervals and Their Related Ratios . . . . . . . . . 2.3.2 Working-Age Factors . . . . . . . . . . . . . . . . . . . 2.3.3 Other Demographic Factors . . . . . . . . . . . . . . . 2.4 The Stock Market and Demographic Factors . . . . . . . . . . 2.4.1 Stock Price Indexes . . . . . . . . . . . . . . . . . . . 2.4.2 Price-Earnings Ratio . . . . . . . . . . . . . . . . . . . 2.4.3 Yield and Returns . . . . . . . . . . . . . . . . . . . . 2.4.4 Market Structure . . . . . . . . . . . . . . . . . . . . . 2.4.5 Other considerations . . . . . . . . . . . . . . . . . . . 2.4.6 Summary of Equities . . . . . . . . . . . . . . . . . . . 2.5 The Bond Market and Demographic Factors . . . . . . . . . . 2.5.1 Bond Yields . . . . . . . . . . . . . . . . . . . . . . . . 2.5.2 Bond Prices and Market Size . . . . . . . . . . . . . . 2.5.3 Interest rates . . . . . . . . . . . . . . . . . . . . . . . 2.5.4 Other considerations . . . . . . . . . . . . . . . . . . . 1

6 6 7 9 9 10 11 11 12 13 15 19 20 21 22 23 25 25 27

2.6 2.7 2.8

Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

3 Specification of a Model Incorporating the Impact of Changes in Demographic Structure on the Long-term Dynamics of House Prices 3.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Description of Model . . . . . . . . . . . . . . . . . . . . . . . 3.3 First Order Conditions . . . . . . . . . . . . . . . . . . . . . . 3.3.1 Log Utility . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.2 Generic CRRA Utility . . . . . . . . . . . . . . . . . . 3.4 Approach to Empirical Testing . . . . . . . . . . . . . . . . . 3.4.1 Existing Literature . . . . . . . . . . . . . . . . . . . . 3.4.2 Proposed Approach . . . . . . . . . . . . . . . . . . . .

37 37 38 41 42 43 44 44 46

4 Acknowledgements

49

2

List of Tables 2.1 2.2 2.3 2.4

Stock Market Factors as Dependent Variables . . . . . . Summary of Cases and Dates for Stock Market Research Bond Market Factors as Dependent Variables . . . . . . Summary of Cases and Dates for Bond Market Research

3.1 3.2

Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . 47 Sources of Data for Empirical Analysis . . . . . . . . . . . . . 48

3

. . . .

. . . .

. . . .

33 34 35 36

Chapter 1 Introduction In 2015 an international team of researchers at the University of Waterloo (Canada) and the University of Kent (Unit