CFDP 1380

Demography and the Long-run Predictability of the Stock Market

Author(s): 

Publication Date: August 2002

Pages: 23

Abstract: 

Stock market price/earnings ratios should be influenced by demography. Since demography is predictable, stock returns should be as well. We provide a simple stochastic OLG model with a cyclical structure that generates cyclical P/E ratios. We calibrate the model to roughly fit the cyclical features of historical P/E ratios.

Keywords: 

Demography, Price earnings ratio, Returns, Efficient markets, Baby-boom, Savings

JEL Classification Codes:  E21, E32, E43, E44, G12, J11