Stock market price/earnings ratios should be influenced by demography. Since demography is predictable, stock returns should be as well. We provide a simple stochastic OLG model with a cyclical structure that generates cyclical P/E ratios. We calibrate the model to roughly ﬁt the cyclical features of historical P/E ratios.
Geanakoplos, John; Magill, Michael; and Quinzii, Martine, "Demography and the Long-run Predictability of the Stock Market" (2002). Cowles Foundation Discussion Papers. 1644.