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The Risk-Return Trade-Off in Human Capital Investment

  • Christiansen, Charlotte

    ()

    (Aarhus School of Business)

  • Joensen, Juanna Schrøter

    ()

    (Stockholm School of Economics)

  • Nielsen, Helena Skyt

    ()

    (Aarhus University)

In this paper we analyze investments in human capital assets in a way which is standard for financial assets, but not (yet) for human capital assets. We study mean-variance plots of human capital assets. We compare the properties of human capital returns using a performance measure and by using tests for mean-variance spanning. A risk-return trade-off is revealed, which is not only related to the length of education but also to the type of education. We identify a range of educations that are efficient in terms of investment goods, and a range of educations that are inefficient, and may be chosen for consumption purposes.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1962.

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Length: 41 pages
Date of creation: Feb 2006
Date of revision:
Publication status: published in: Labour Economics, 2007, 14 (6), 971-986
Handle: RePEc:iza:izadps:dp1962
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