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The Robustness of the Conditional CAPM with Human Capital

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  • Ignacio Palacios-Huerta

Abstract

An empirical evaluation is provided of the robustness of the conditional capital asset pricing model (CAPM) with human capital to explain the cross-sectional variability of security returns. This model has been evaluated in the literature using the growth rate in per capita labor income. This article looks at richer measures of human capital returns. It develops measures that incorporate the costs and benefits of educational investment, skill premiums, worker experience, and other relevant features of human capital markets. It also considers variables that help to forecast future human capital returns. We find that some of these richer measures help improve substantially the performance of the model. , .

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Bibliographic Info

Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 1 (2003)
Issue (Month): 2 ()
Pages: 272-289

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Handle: RePEc:oup:jfinec:v:1:y:2003:i:2:p:272-289

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Cited by:
  1. Antonios Athanassiadis, 2011. "Economic Returns and Risks to Investment in Education: An Application of the Multifactor CAPM," International Journal of Economic Sciences and Applied Research (IJESAR), Technological Educational Institute (TEI) of Kavala, Greece, vol. 4(1), pages 95-120, March.
  2. Fugazza, Carolina & Giofré, Maela & Nicodano, Giovanna, 2011. "International diversification and industry-related labor income risk," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 764-783, October.
  3. Christiansen, Charlotte & Joensen, Juanna Schrøter & Nielsen, Helena Skyt, 2006. "The Risk-Return Trade-Off in Human Capital Investment," IZA Discussion Papers 1962, Institute for the Study of Labor (IZA).
  4. Betermier, Sebastien & Jansson, Thomas & Parlour, Christine & Walden, Johan, 2012. "Hedging labor income risk," Journal of Financial Economics, Elsevier, vol. 105(3), pages 622-639.
  5. Miguel Palacios, 2010. "Human Capital as an Asset Class: Implications from a General Equilibrium Model," Working Papers 2011-016, Human Capital and Economic Opportunity Working Group.
  6. Dreyer, Johannes K. & Schneider, Johannes & Smith, William T., 2013. "Saving-based asset-pricing," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3704-3715.
  7. Hanno Lustig, 2005. "The Returns on Human Capital: Good News on Wall Street is Bad News on Main Street (joint with Stijn Van Nieuwerburgh)," UCLA Economics Online Papers 352, UCLA Department of Economics.
  8. Saffi, Pedro, 2008. "Expected returns and liquidity risk: Does entrepreneurial income matter?," IESE Research Papers D/749, IESE Business School.
  9. Cziraki, P., 2012. "Insider trading, shareholder activism, and corporate policies," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5590840, Tilburg University.
  10. Hanno Lustig & Stijn Van Nieuwerburgh, 2008. "The Returns on Human Capital: Good News on Wall Street is Bad News on Main Street," Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2097-2137, September.
  11. Sylvain, Serginio, 2014. "Does Human Capital Risk Explain The Value Premium Puzzle?," MPRA Paper 54551, University Library of Munich, Germany.
  12. Esther Eiling, 2013. "Industry-Specific Human Capital, Idiosyncratic Risk, and the Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 68(1), pages 43-84, 02.
  13. Christopher Malloy & Tobias Moskowitz, 2005. "Human Capital Risk, Stockholder Consumption, and Asset Returns," 2005 Meeting Papers 123, Society for Economic Dynamics.

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