Economic Returns and Risks to Investment in Education: An Application of the Multifactor CAPM
AbstractConsidering the investment in education as uncertain financial decision making we modify the short-cut method of calculating rates of return to education by incorporating the risk premium. Recognizing that market risk isn’t the only factor affecting returns, we estimate the returns to education in fifteen member - states of the European Union and the Organisation for Economic Co-operation and Development during the period 2005 – 2007 as seen from a macroeconomic point of view using Multifactor CAPM. Following this model we assess, except market risk, the impact of three key macroeconomic variables (investments, productivity and unemployment) on returns and, using panel data regression techniques, we investigate whether this holds true with respect to investment in education. We also evaluate the risk – adjusted performance of investment in education and the role of returns as well as that of the key macroeconomic variables to economic development. The results tend to confirm the theoretical expectations and empirical literature. The purpose of the present study is twofold: first, to estimate the relationship between education returns and risk and second to measure the impact of return and key macro factors on real GDP growth rate, therefore casting light in the channels through which the economic growth can be affected.
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Bibliographic InfoArticle provided by Technological Educational Institute (TEI) of Kavala, Greece in its journal International Journal of Economic Sciences and Applied Research (IJESAR).
Volume (Year): 4 (2011)
Issue (Month): 1 (March)
CAPM; Human Capital Theory; GMM;
Find related papers by JEL classification:
- I22 - Health, Education, and Welfare - - Education - - - Educational Finance
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ignacio Palacios-Huerta, 2001.
"An Empirical Analysis of the Risk Properties of Human Capital Returns,"
2001-10, Brown University, Department of Economics.
- Ignacio Palacios-Huerta, 2003. "An Empirical Analysis of the Risk Properties of Human Capital Returns," American Economic Review, American Economic Association, vol. 93(3), pages 948-964, June.
- Christiansen, Charlotte & Joensen, Juanna Schroter & Nielsen, Helena Skyt, 2007.
"The risk-return trade-off in human capital investment,"
Elsevier, vol. 14(6), pages 971-986, December.
- 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).
- Charlotte Christiansen & Juanna Schröter Joensen, 2006. "The Risk-Return Trade-Off in Human Capital Investment," Economics Working Papers 2006-02, School of Economics and Management, University of Aarhus.
- Ignacio Palacios-Huerta, 2003. "The Robustness of the Conditional CAPM with Human Capital," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 1(2), pages 272-289.
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