This setting lets you change the way you view articles. You can choose to have articles open in a dialog window, a new tab, or directly in the same window.
Open in Dialog
Open in New Tab
Open in same window

American Economic Review: Vol. 97 No. 5 (December 2007)

Expand

Quick Tools:

Print Article Summary
Export Citation
Sign up for Email Alerts Follow us on Twitter

Explore:

AER - All Issues

AER Forthcoming Articles

Demographics and Industry Returns

Article Citation

DellaVigna, Stefano, and Joshua M. Pollet. 2007. "Demographics and Industry Returns." American Economic Review, 97(5): 1667-1702.

DOI: 10.1257/aer.97.5.1667

Abstract

How do investors respond to predictable shifts in profitability? We consider how demographic shifts affect profits and returns across industries. Cohort size fluctuations produce forecastable demand changes for age-sensitive sectors, such as toys, bicycles, beer, life insurance, and nursing homes. These demand changes are predictable once a specific cohort is born. We use lagged consumption and demographic data to forecast future consumption demand growth induced by changes in age structure. We find that demand forecasts predict profitability by industry. Moreover, forecast demand changes five to ten years in the future predict annual industry stock returns. One additional percentage point of annualized demand growth due to demographics predicts a 5 to 10 percentage point increase in annual abnormal industry stock returns. However, forecasted demand changes over shorter horizons do not predict stock returns. A trading strategy exploiting demographic information earns an annualized risk-adjusted return of approximately 6 percent. We present a model of inattention to information about the distant future that is consistent with the findings. We also discuss alternative explanations, including omitted risk-based factors. (JEL E21, G12, G32, J11, L11, L25)

Article Full-Text Access

Full-text Article

Additional Materials

Download Data Set (155.11 MB)

Authors

DellaVigna, Stefano (University of California, Berkeley and NBER)
Pollet, Joshua M. (University of Illinois)

JEL Classifications

E21: Macroeconomics: Consumption; Saving; Wealth
G12: Asset Pricing; Trading volume; Bond Interest Rates
G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
J11: Demographic Trends and Forecasts; General Migration
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L25: Firm Performance: Size, Diversification, and Scope


American Economic Review


Quick Tools:

Sign up for Email Alerts

Follow us on Twitter

Subscription Information
(Institutional Administrator Access)

Explore:

AER - All Issues

AER - Forthcoming Articles

Virtual Field Journals


AEA Member Login:


AEAweb | AEA Journals | Contact Us