Using data for G7 countries over the period from 1950 to 2007, this paper finds that an unexpected shock to the mortality rate is significantly negatively correlated with the equity premium. A one basis point unexpected negative shock to the mortality rate increases both the one-year and five-year equity premiums by 0.54% and 1.66%, respectively. We also demonstrate how financial institutions could use our findings to hedge the risk of mortality-linked securities.
