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Return and risk of human capital contracts

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  • Kroencke, Tim A.
  • Muehler, Grit
  • Sprietsma, Maresa

Abstract

Human capital contracts give private investors the right to share of students' future earnings in return for a financial contribution during their studies. Although still rarely used, human capital contracts could not only help to completement limited public funding for higher education but might also be an alternative to traditional financial assets. Using a dataset covering 1% of German households for the period 1995-2009, we analyse the return and risk properties that can be expected from human capital contracts. We find that funds of human capital contracts provide low risk exposures to stocks and bonds. As a result, risk-adjusted returns of funds of human capital contracts are signicantly positive under fairly weak conditions. Thus, human capital contracts potentially offer large diversification benefits for investors and might be a way to improve the state's educational budget --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 13-108.

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Date of creation: 2013
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Handle: RePEc:zbw:zewdip:13108

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Keywords: human capital returns; human capital contracts; risk and return of non-traded assets; mean-variance spanning tests;

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  1. Driessen, Joost & Lin, Tse-Chun & Phalippou, Ludovic, 2012. "A New Method to Estimate Risk and Return of Nontraded Assets from Cash Flows: The Case of Private Equity Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(03), pages 511-535, June.
  2. John Lintner, 1965. "Security Prices, Risk, And Maximal Gains From Diversification," Journal of Finance, American Finance Association, vol. 20(4), pages 587-615, December.
  3. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
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