The Surprising Good News About Demographics and the Stock Market

2/4/2018 - Professor of Economics Martine Quinzii in the Wall Street Journal.

Everybody knows the conventional wisdom that the demographic trend these days is not a friend of the stock market. The baby-boom generation, we’ve been told, is moving into retirement, and selling stocks in the process.

The conventional wisdom, though, is no longer as accurate as it used to be.

I wrote a newspaper article about a study soon after it was published, forecasting that the shift in demographics would cause the stock market on balance to struggle until 2016. The study’s authors were John Geanakoplos, an economics professor at Yale University, Michael Magill, an economics professor at the University of Southern California, and Martine Quinzii, an economics professor at the University of California, Davis. Though their model is complex, its essence can be distilled to a single number: the ratio of those the authors label as middle-aged (ages 35-49) to those labeled young (ages 20-34). 

The model’s prediction is that stocks on balance should perform better when this so-called MY ratio is rising than when it is falling. It is this ratio that turned up at the beginning of last year and will continue rising until 2035.

Read the full story in the Wall Street Journal.