The potential effect of US baby-boom retirees on stock returns |
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| Institution: | 1. Department of Economics, Waikato University, New Zealand;2. Facultad de Economía, Universidad del Rosario, Colombia;3. Department of Economics, University of Macedonia, Greece;1. University of Aberdeen, King''s College, Aberdeen, AB24 3UE, United Kingdom;2. Technische Universität München, Zentrum Mathematik-M11, Boltzmannstrasse 3, 85748 Garching, Germany;1. School of Securities and Futures, Southwestern University of Finance and Economics, Chengdu 611130, China;2. The Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, Fujian 361005, China;1. Department of Management, University of Bologna, via Capo di Lucca 34, 40126 Bologna, Italy;2. Department of Statistics, University of Bologna, Via Belle Arti 41, 40126 Bologna, Italy |
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| Abstract: | Empirical studies demonstrated that US baby boomers consumption and savings patterns have affected economic aggregates over the past decades, among them equity returns. Boomers’ retirement is expected to mitigate the demand for equities until 2050, but its impact varies with the specific population age structure along decades. This paper employs a dynamic asset pricing model with optimum consumption and portfolio rules to estimate aging effects on S&P500 returns between 1950 and 2050. Calibration for demographic and economic data between 1950 and 2005 yields model estimates that significantly explain the moving average of S&P500 returns. Further, taking into account the present value of expected demographic effects until 2050 suggests that the S&P500 was fairly priced at the heart of the financial crisis, on April 2009, but overpriced thereafter. |
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| Keywords: | Predictability Demography Baby-boom Asset pricing Aging |
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