Age Distributions and Returns of Financial Assets

This paper explores the relationship between age distribution and asset returns impled by an overlapping-generations asset pricing model. The model predicts that as more individuals reach the age when the increment to their wealth reaches its maximum, asset returns fall. Cross-sectional evidence from the Survey of Financial Characteristics of Consumers and the Surveys of Consumer Finances indicates that individuals aged 45 to 54 have the largest increment to wealth of all age group. Time series estimates confirm that a close link exists between aggregate household wealth and the size of this age group. In accordance with the model presented in this paper, time series estimates of the relationship between asset returns and age distribution suggests a large, statistically significant, negative correlation between the fraction of the population aged 45 to 54 and the returns of several types of assets.