Asset Management, Human Capital, and the Market for Risky Assets
Conventional finance models treat riskyâ€ asset prices as â€œfully (information) revealing.â€ Less work exists on how prices become information revealing. Our answer focuses on the micro foundations of information acquisition and the role of human capital in â€œasset management.â€ We derive testable propositions on how education and the opportunity cost of asset management affect riskyâ€ asset demand, portfolio returns, assetâ€ price volatility, and equity premiums. Using microâ€ level data, we find that education raises the portfolio share of risky assets and overall portfolio returns, whereas wage rates exert opposite effects. We find that the rate of return to education in generating nonwage income is nontrivial.
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