COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1380

Demography and the Long-run Predictability of the Stock Market

John Geanakoplos, Michael Magill and Martine Quinzii

August 2002

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: E21, E32, E43, E44, G12, J11