"Classic Research: Demography and the Stock Market" and "Demographic Headwind for U.S. Stock Market?" look at interactions between U.S. age demographics and U.S. stock market behavior. Predictions in these papers generally failed by forecasting a downward trend in the market price-to-earnings ratio due to changing demographics. What does adding over a decade of data say? To investigate we look at interactions between:
- Annual total returns for Shiller's S&P Composite Index measured at the end of June each year and adjusted for inflation based on the U.S. consumer price index (real total returns).
- Annual percentages of total U.S. population for seven age cohorts as of July 1 each year from the U.S. Census Bureau Age and Sex Tables: <24, 25-34, 35-44, 45-54, 55-64, 65-74 and >75.
We look at cohorts individually and at the ratio of the middle four cohorts (25-34, 35-44, 45-54, 55-64) to the youngest plus two oldest cohorts (<24, 65-74, >75), termed the productive ratio (PR). We test how these metrics relate to stock index real total returns over the next 10 years. Using the specified annual data for 1900 through 2023 (limited by demographic data), we find that:
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