Demographic changes have major impacts on the stock market, as well as, risks and returns for investment. The age structure of a nation affects the investment and savings patterns. The basic lifecycle theory says that, young people do not invest as much as the aged people. The middle aged population deposits maximum money in savings and investment in governmental and non-governmental bonds and securities. The senior population tends to invest less money in less risky financial schemes, rather they prefer to enjoy the earnings from the past investments (Merkle and Weber 2014). Demographic changes like increasing or decreasing birth rate, longer life expectancy, have effects on the investment patterns. Firstly, the baby boomer time across the world has major impact on the growing population. The increase in population brings about asset meltdown globally. As this situation is changing globally, there will be more of aged people than young people (Dellavigna and Pollet 2013). In such case, people would likely to convert their investments more into cash for more consumption. At the same time, the reducing number of younger population, who has the tendency to buy more than save more, would reduce the demand for all types of investments. As the number of aged population is increasing, there would be a rapid fall in the asset values, extending from bonds to equities to real estate.
There is declining investment trend in equities. Senior people are moving into retirement and moving out of equities. Migration also plays a role in the stock market. Along with aging population, the investment behavior of the migrated people also determine the condition of the stock market. Hence, the nature of the stock market would be different in a country with more migrated population, than in a country with less migrated population. Migrated people would always choose less risky investment options than the people who have a stable job and stable life (Bodie 2013).
A first time investor in stock market must consider the current demographic condition of the nation. The study about the people, who are buying and selling stocks in the stock market, would help the first time investors to get an idea about the asset value of the market. If people shows the tendency to decrease the investment in the stocks, then the market would be unstable. Hence, the market as well as demographic condition should be monitored closely.
The trends in business cycles are caused by factors, like, technological or investment developments, entrepreneurship. These are also important factors for economic growth. There is a relationship between stock market end economic growth of the country. It influences the confidence of the consumers and financial conditions. When the stocks are in the bull market, there would be optimism in the economy regarding the prospects of various stocks (Dellavigna and Pollet 2013). Higher value of stocks enables the companies to borrow more amount of money at lower rates. It allows them to expand their operations, make investments in new projects, and recruit more labor. These activities boost the GDP of the nation. In such environment, consumers are likely to spend more to make larger purchases and major investments, such as vehicles or houses. When the stock prices are in the bull market, there is more wealth in the economy as well as optimism about the future prospects. This confidence of the people is reflected into increased spending, that results in increased sales and revenues for the organizations and further boosts the GDP (Baker, Bloom and Davis 2015).
When the prices of the stocks are low, it has a negative effect on the GDP via same channels. Companies cut costs and lower the worker force. As the companies cannot find any new sources for financing and the existing debt loads of the company becomes a burden. Due to a pessimistic environment in the economy, investment level would be very low. It also affects the level of consumer spending in the economy due to reduced stock prices (Guillén and Capron 2016). There would be increase in the unemployment rate and more uncertainty about the future. When the stocks are in the bear market, the stockholders loose some wealth and confidence of the customers falls. This also have negative effect on GDP. On the other hand, the stock market also has effects on the economic growth of the nation. When there is a growth in GDP above the consensus or the expectation, the stocks need to be in the bull market for increase in the corporate earnings (Hajilee and Al Nasser 2014). The opposite happens when the GDP falls below the consensus or expectation level. Therefore, it is important for the first time investors to study the stock market if it is in the bull market or in the bear market and take the investment decisions accordingly.
There is a strong relationship between the rising or depreciating value of money and stock prices. Inflation is the overall rise in the price level of the economy, and the opposite is called deflation. When there is a rise in the prices of goods and services in the country, it results in the fall in the purchasing power of the currency. Consumers’ disposable income reduces, input prices go up, profits and revenue decrease, and the economy slows down for some time until a new equilibrium is reached (Giesecke et al. 2014). The studies on this subject show that expected inflation can have positive or negative impact on the stock prices depending on the monetary policy of the government and the ability of the companies to hedge. However, the unexpected inflation has strong positive correlation with returns on stock during the contraction of the economy. Hence, the investors, especially the first timers, must gauge the phase of the economic cycle before investing in the stocks. At the same time, high rate of inflation is also correlated with greater volatility of the movements of the stocks. Hence, inflation has very strong volatile effects on the stock market (Rogers, Scotti and Wright 2014).
Deflation is the opposite of inflation. It helps to increase the disposable income as well as the purchasing power of the consumers. It helps in the short run but has an adverse effect on the stock market. While in deflation, the organizations have to decrease their prices, and due to this, they earn less profit. It also affects the demand for lending by banks and investors negatively. Finance for the investors suffers from deflationary effects in the economy and lower value of money (Rey 2015). Therefore, the first time investors must study the inflation or deflation situation of the economy before investing.
Monetary policy improves the financial conditions than the aggregate demand in the economy. If the cost of money is lowered then, it would increase the supply of money, reduce the rate of interest and cost of borrowing. Since, the stock prices reflect the developments in the economic sector; it also shows the expectation of the private sector. As the interest rates influences the capital costs, it influences the current value of the future net cash flow of a company (Bodie 2013). Higher rates would lead to high rate of interest, and low current value of future net cash flow. That decreases the stock prices. In case of fiscal policy, it leads to increase in the aggregate demand and employment in the economy. Hence, there is higher spending and higher confidence of the consumers. Stock prices increase as this leads to increased sales and revenues for the organizations (Chatziantoniou, Duffy and Filis 2013).
Baker, S.R., Bloom, N. and Davis, S.J., 2015. Measuring economic policy uncertainty (No. w21633). National Bureau of Economic Research.
Barro, R.J. and Ursúa, J.F., 2017. Stock-market crashes and depressions. Research in Economics.
Bodie, Z., 2013. Investments. McGraw-Hill.
Chatziantoniou, I., Duffy, D. and Filis, G., 2013. Stock market response to monetary and fiscal policy shocks: Multi-country evidence. Economic Modelling, 30, pp.754-769.
Dellavigna, S. and Pollet, J.M., 2013. Capital budgeting versus market timing: An evaluation using demographics. The Journal of Finance, 68(1), pp.237-270.
Giesecke, K., Longstaff, F.A., Schaefer, S. and Strebulaev, I.A., 2014. Macroeconomic effects of corporate default crisis: A long-term perspective. Journal of Financial Economics, 111(2), pp.297-310.
Guillén, M.F. and Capron, L., 2016. State capacity, minority shareholder protections, and stock market development. Administrative Science Quarterly, 61(1), pp.125-160.
Hajilee, M. and Al Nasser, O.M., 2014. Exchange rate volatility and stock market development in emerging economies. Journal of Post Keynesian Economics, 37(1), pp.163-180.
Li, G., 2014. Information sharing and stock market participation: Evidence from extended families. Review of Economics and Statistics, 96(1), pp.151-160.
Merkle, C. and Weber, M., 2014. Do investors put their money where their mouth is? Stock market expectations and investing behavior. Journal of Banking & Finance, 46, pp.372-386.
Rey, H., 2015. Dilemma not trilemma: the global financial cycle and monetary policy independence (No. w21162). National Bureau of Economic Research.
Rogers, J.H., Scotti, C. and Wright, J.H., 2014. Evaluating asset-market effects of unconventional monetary policy: a multi-country review. Economic Policy, 29(80), pp.749-799To export a reference to this article please select a referencing stye below:
My Assignment Help. (2018). Economic Policy Framework And Markets. Retrieved from https://myassignmenthelp.com/free-samples/economic-policy-framework-and-markets.
"Economic Policy Framework And Markets." My Assignment Help, 2018, https://myassignmenthelp.com/free-samples/economic-policy-framework-and-markets.
My Assignment Help (2018) Economic Policy Framework And Markets [Online]. Available from: https://myassignmenthelp.com/free-samples/economic-policy-framework-and-markets
[Accessed 26 January 2021].
My Assignment Help. 'Economic Policy Framework And Markets' (My Assignment Help, 2018) <https://myassignmenthelp.com/free-samples/economic-policy-framework-and-markets> accessed 26 January 2021.
My Assignment Help. Economic Policy Framework And Markets [Internet]. My Assignment Help. 2018 [cited 26 January 2021]. Available from: https://myassignmenthelp.com/free-samples/economic-policy-framework-and-markets.
At MyAssignmenthelp.com, we are committed to deliver quality assignment assistance in the fastest way possible. To make our service delivery fast, we have hired subject matter experts to work on different subject specific assignments. We have hired experts who owe in-depth knowledge in their respective subjects. As per their expertise, they provide geography assignment help, Physics assignment help, Strategic assignment help, history assignment help, art architecture assignment help and assistance with other subjects as well.
Answer: A minimum wage is an example of a price floor, it is a government regulation that makes hiring labour services for less than a specified wage illegal such that an employee cannot give a wage lower to the level defined. A minimum wage is not binding if set at an equilibrium position but is considered to be binding if it is set above the “equilibrium wage”. The uncertainty is only driven by the minimum wage policy ...
Read MoreAnswer: Introduction This study is aimed at establishing how the Australian economy was impacted by the 2008 GFC and how it responded to put the situation under control. This crises was noted to have significant negative impact on nearly all economies in the whole world. Many nations went into a recession and recorded a significant fall in GDP and unemployment rose. Productivity on nearly all economies was greatly discouraged. The increased l...
Read MoreAnswer: Introduction: In Latin America, one of the stable economy is Costa Rica. The economy continues to be benefitted from a higher economic growth and associated higher commodity price. The economy engages in tradition agricultural export such as coffee, sugar, beef and bananas. Export is a vital source of income within the economy. There are two popular views of designing economy policy in a nation. One is economic nationalists that...
Read MoreAnswer: Introduction: The figure above demonstrates the market for Uber rides. The demand function of rides is given as DD. The corresponding supply function of rides is given by the upward sloping line SS. After storms, lack of subways become troublesome for people. People prefer to switch to car services to escape from storm ravaged areas (Chen, 2012). This increases the demand for Uber rides shifting the demand curve to the right to ...
Read MoreAnswer 1. (a) Definition One of the key features of perfectly competitive firms is that they are price takers and not price makers. This happens due to primarily two reasons. One of these is because of the small size of all the producers due to which no firm has the ability to influence the industry by the underlying economic decisions it makes. This prevents any particular firm from bringing changes in the price. The second reason is that th...
Read MoreJust share requirement and get customized Solution.
Orders
Overall Rating
Experts
Our writers make sure that all orders are submitted, prior to the deadline.
Using reliable plagiarism detection software, Turnitin.com.We only provide customized 100 percent original papers.
Feel free to contact our assignment writing services any time via phone, email or live chat. If you are unable to calculate word count online, ask our customer executives.
Our writers can provide you professional writing assistance on any subject at any level.
Our best price guarantee ensures that the features we offer cannot be matched by any of the competitors.
Get all your documents checked for plagiarism or duplicacy with us.
Get different kinds of essays typed in minutes with clicks.
Calculate your semester grades and cumulative GPa with our GPA Calculator.
Balance any chemical equation in minutes just by entering the formula.
Calculate the number of words and number of pages of all your academic documents.
Our Mission Client Satisfaction
Very well done on time.Reached out of Expectations.Wish to consider more assignments from you
Australia
Thank you soo much i get full makes and it was full solution exactly like what i need , thank a lot :)
Australia
I got A+ on my paper and I was very excited. my writer did an amazing job. thank you
Australia
Very helpful and came just in time. I appreciate my assignment help and will be using again
Australia