The role of demographic variables in explaining financial returns in Italy

This paper contributes to the ongoing debate on the relationship between asset returns and age-structure by investigating the case of Italy, which is experiencing one of the most pronounced ageing in the world. To this end, time-series regressions are run, in which real returns on different financial assets (stocks, long- and short-term government bonds) are used as dependent variables. The dataset contains annual observations spanning over the period 1958-2004. First, as in Poterba (2001, 2004) only demographic variables are used as explanatory ones. Then, following Davis and Li (2003) the regression specifications are completed with a set of financial variables which have finance-theoretical underpinnings. Results point towards a major effect of demographic dynamics on financial asset returns which appear significantly higher in magnitude than what Poterba (2001, 2004) and Davis and Li (2003) report for US, especially in the stock market.