Will Bequests Attenuate the Predicted Meltdown in Stock Prices When Baby Boomers Retire?

Topics:
Equity
Tags:
Asset,
Stock,
Operational Planning,
Investment,
Financial Accounting,
Finance,
Business Operations,
Baby Boomer,
Asset Management,
Stock Price
Source:
Knowledge@Wharton

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Overview: Article asserts that consumers do not spend all of their assets during retirement and projects that the demand for assets will remain high when the baby boomers retire. Based on this forecast of continued high demand for capital, author rejects the asset market meltdown hypothesis, which predicts a fall in stock prices when the baby boomers retire. The author has developed a rational expectations general equilibrium model with a bequest motive and an aggregate supply curve for capital. In this model, a baby boom generates an increase in stock prices, and stock prices are rationally anticipated to fall when the baby boomers retire, even though consumers do not spend all of their assets during retirement. This finding contradicts the conclusion that continued high demand for assets by retired baby boomers will prevent a fall in the price of capital.

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Format: PDF | Size: 250KB | Date: Jan 2001 | Pages: 19

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