This paper illustrates how the information component determining long-horizon US stock market returns can be related to a demographic variable, MY the ratio of middle-aged to young adults. In fact, MY can be seen as the major determinants of a slowly evolving time-varying mean of the dividend price ratio. A forecasting model for stock market returns over a century of US annual data that uses as predictors the dividend price ratio and MY overcomes all the statistical difficulties related to the high persistence of the dividend-price ratio and performs very well in forecasting long-horizon stock market returns. Moreover, the use of demographic variables as a predictor for long-run stock market returns delivers a steeply downward sloping term structure of stock market risk.

Demographics and US stock market fluctuations

Favero, Carlo;Tamoni, Andrea
2010

Abstract

This paper illustrates how the information component determining long-horizon US stock market returns can be related to a demographic variable, MY the ratio of middle-aged to young adults. In fact, MY can be seen as the major determinants of a slowly evolving time-varying mean of the dividend price ratio. A forecasting model for stock market returns over a century of US annual data that uses as predictors the dividend price ratio and MY overcomes all the statistical difficulties related to the high persistence of the dividend-price ratio and performs very well in forecasting long-horizon stock market returns. Moreover, the use of demographic variables as a predictor for long-run stock market returns delivers a steeply downward sloping term structure of stock market risk.
2010
Favero, Carlo; Tamoni, Andrea
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3717565
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