Risk Aversion vs. Age

Research confirms that the price of capital risk is closely related to the age of investors. As investors age, their appetite for risk decreases. Consequently, the older the average age of investors, the higher the required compensation for taking on risk.

Consumption Preferences (in time)

Markets differ in their consumption preferences. There are markets where people tend to save more than they consume, and vice versa.

The greater the inclination towards consumption, the higher the price of risk (meaning more motivation is required to make an investment). An analysis of 27 countries (Rieger, Wang, and Hens, 2012) supports this.

It is often said that the avocado toast generation saves nothing for the future. Therefore, in the next 10-20 years, an increase in the price of risk is expected.

*Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2013 Edition Updated: March 2013; Aswath Damodaran; Stern School of Busines