tailieunhanh - The Baby Boom and the Stock Market Boom

The first issue that we investigate is the effect of aging on the prices of assets, in particular stocks. The motivation for this line of research is the large discussion, both within the academic community and in popular media, about the role of the baby boom generation in driving the remarkable growth of stock prices over the last decade. To give an example of this sort of analysis, The New York Times wrote (Jan 5, 1998) that “In the 1990’s, the performance of the American stock market has been nothing short of amazingMost of that performance has come from demographics, as the baby boom reaches the. | The Baby Boom and the Stock Market Boom Kyung-Mook Lim and David N. Weik March 10 2003 Abstract This paper addresses two issues. The first is whether demographic change was plausibly responsible for the run-up in stock prices over the last decade and whether the attempt by the baby boom cohort to cash out of its investments in the period 2010-30 might lead to an asset meltdown. The second issue is whether the rise in dependency that will accompany the retirement of the baby boom cohort calls for an increase in national saving. We analyze these issues using a forward-looking macro-demographic model and show that they are related via the existence of installation costs for capital. If such costs are sufficiently large then demographics do have the power to affect stock prices but saving for America s old age is less optimal. However conventional estimates of capital installation costs are not large enough to explain large stock price movements in response to actual demographic change. 1 Introduction The aging of the US population and the parallel aging of populations in most of the rest of the industrial world are expected to have far reaching economic social and political implications. This paper examines two related issues that arise when one considers the implications of aging for investment. Money and Finance Team Korea Development Institute Seoul Korea 130-012 Email limk@. The author owes thanks to Chang Min Lee for his research assistance. The views expressed are those of the author and are not necessarily shared by KDI. Department of Economics Brown University Providence RI 02912 and NBER. Email DaviffiWeil@ We thank Douglas Elmendorf and Louise Sheiner for helpful comments. 1 The first issue that we investigate is the effect of aging on the prices of assets in particular stocks. The motivation for this line of research is the large discussion both within the academic community and in popular media about the role of the baby boom generation .