Demographics as a Predictor of United States Equity Prices

Abstract

In this paper, I find that the long-run, secular moves of the MY ratio, the ratio of middle-aged to young, is related to the long-run, secular moves of the S&P 500 from 1950 to 2020. I focus my research on the United States, but also find compelling evidence of the MY ratio's global importance through the case of Japan. Utilizing a vector error correction model (VECM), I project the ability of economic variables and the MY ratio to accurately predict S&P 500 growth. I then create forecasts of the S&P 500 and Nikkei 225 growth rates until 2050 using only medium-variant predictions of the MY ratio.