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The Robustness of the Conditional CAPM with Human Capital

Author

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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. , .

Suggested Citation

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

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    Cited by:

    1. 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, February.
    2. Cronqvist, Henrik & Siegel, Stephan & Yu, Frank, 2015. "Value versus growth investing: Why do different investors have different styles?," Journal of Financial Economics, Elsevier, vol. 117(2), pages 333-349.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Saffi, Pedro, 2008. "Expected returns and liquidity risk: Does entrepreneurial income matter?," IESE Research Papers D/749, IESE Business School.
    8. Dreyer, Johannes K. & Schneider, Johannes & Smith, William T., 2013. "Saving-based asset-pricing," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3704-3715.
    9. Tsai, Hui-Ju & Wu, Yangru, 2014. "Optimal portfolio choice for investors with industry-specific labor income risks," Finance Research Letters, Elsevier, vol. 11(4), pages 429-436.
    10. 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.
    11. Sylvain, Serginio, 2014. "Does Human Capital Risk Explain The Value Premium Puzzle?," MPRA Paper 54551, University Library of Munich, Germany.
    12. 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), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 4(1), pages 95-120, March.
    13. Betermier, Sebastien & Jansson, Thomas & Parlour, Christine & Walden, Johan, 2012. "Hedging labor income risk," Journal of Financial Economics, Elsevier, vol. 105(3), pages 622-639.
    14. Christopher Malloy & Tobias Moskowitz, 2005. "Human Capital Risk, Stockholder Consumption, and Asset Returns," 2005 Meeting Papers 123, Society for Economic Dynamics.
    15. Cziraki, P., 2012. "Insider trading, shareholder activism, and corporate policies," Other publications TiSEM f54b4af1-7cb1-401f-a44a-8, Tilburg University, School of Economics and Management.

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