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Economic Returns and Risks to Investment in Education: An Application of the Multifactor CAPM

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  • Antonios Athanassiadis

    (PhD. Candidate, Department of Accounting and Finance, University of Macedonia 156, Egnatia Street, 54006 Thessaloniki, Greece)

Abstract

Considering 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.

Suggested Citation

  • Antonios Athanassiadis, 2011. "Economic Returns and Risks to Investment in Education: An Application of the Multifactor CAPM," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 4(1), pages 95-120, March.
    • Handle: RePEc:tei:journl:v:4:y:2011:i:1:p:95-120
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    References listed on IDEAS

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    1. Ignacio Palacios-Huerta, 2003. "The Robustness of the Conditional CAPM with Human Capital," Journal of Financial Econometrics, Oxford University Press, vol. 1(2), pages 272-289.
    2. Menon, Maria Eliophotou, 1997. "Perceived rates of return to higher education in Cyprus," Economics of Education Review, Elsevier, vol. 16(4), pages 425-430, October.
    3. Christiansen, Charlotte & Joensen, Juanna Schroter & Nielsen, Helena Skyt, 2007. "The risk-return trade-off in human capital investment," Labour Economics, Elsevier, vol. 14(6), pages 971-986, December.
    4. Jeffrey M. Wooldridge, 2001. "Applications of Generalized Method of Moments Estimation," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 87-100, Fall.
    5. 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.
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    Cited by:

    1. Shirantha Heenkenda & D.P.S Chandrakumara, 2015. "A Canonical Analysis on the Relationship between Financial Risk Tolerance and Household Education Investment in Sri Lanka," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 1(4), pages 7-23, October.

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    More about this item

    Keywords

    CAPM; Human Capital Theory; GMM;
    All these keywords.

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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