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Will retiring boomers really cause a stock market meltdown?

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  • William Shambora

Abstract

The meltdown hypothesis predicts a large fall in stock prices when baby boomers cash in their equity holdings to fund their retirement. Using an estimated vector autoregression model this paper finds empirical evidence that retiring baby boomers will induce a drag on the stock market, but most likely not of meltdown proportions. An important discovery is that the response to shocks to the supply of equity securities is a key factor in short-term market price movements. Foreign buying associated with the current account deficit is shown to be a minor influence on stock prices.

Suggested Citation

  • William Shambora, 2006. "Will retiring boomers really cause a stock market meltdown?," Applied Financial Economics, Taylor & Francis Journals, vol. 16(17), pages 1239-1250.
  • Handle: RePEc:taf:apfiec:v:16:y:2006:i:17:p:1239-1250
    DOI: 10.1080/09603100500438783
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    References listed on IDEAS

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    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
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    8. Robin Brooks, 2000. "What Will Happen to Financial Markets When the Baby Boomers Retire?," IMF Working Papers 00/18, International Monetary Fund.
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    Cited by:

    1. Eun Kim & Sherman Hanna & Swarn Chatterjee & Suzanne Lindamood, 2012. "Who Among the Elderly Owns Stocks? The Role of Cognitive Ability and Bequest Motive," Journal of Family and Economic Issues, Springer, vol. 33(3), pages 338-352, September.

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