Demographic Change and Pharmaceuticals' Stock Returns


  • The authors would like to thank an anonymous referee, Otto Huber, Stephan Kessler, Axel Kind, David Oesch, Markus Schmid, Michael Steiner, Stephan Suess, Evert Wipplinger, the participants of the FMA conference in Prague and the EFMA conference in Athens for helpful comments and discussions. Correspondence: Rachel Berchtold.


We analyse how demographic change affected profits and returns across pharmaceutical industries over the last 20 years. Fluctuations in different age group sizes influence the estimated demand changes for age-sensitive drugs, such as antibacterials for young, antidepressants for middle-aged, and antithrombotics for old people. These demand changes are predictable as soon as a specific age group is born. We use consumption and demographic data to forecast future consumption demand growth for drugs caused by demographic changes in the age structure. We find that long-term forecast demand changes predict abnormal annual pharmaceutical stock returns for more than 60 firms over the time period from 1986 to 2008. An increase by one percentage point of annual demand growth due to demographic changes predicts an increase in abnormal yearly stock returns in the size of 3–5 percentage points. Short-term forecast demand changes does predict negative abnormal stock returns for a time horizon below 5 years. A trading strategy taking advantage of the demographic information earns a significant abnormal return between 6 and 8 percentage points per year. Our results are consistent with the model by DellaVigna and Pollet (2007), where investors are inattentive with extrapolation in the distant future and overreact to information in the near future.