The human capital that matters: expected returns and the income of affluent households

Sean D. Campbell and George M. Korniotis

No 2008-09, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We implement the human capital CAPM (HCAPM) using the income growth of high income households, rather than aggregate income growth, to proxy the return to human capital (HCRT). We find that identifying the HCRT with the income growth of affluent households, those who are most likely to hold stocks, substantially improves the performance of the HCAPM. Specifically, the pricing errors, R-square’s, average returns on factor mimicking portfolios, and performance relative to other macro-finance models uniformly improve as the HCRT is identified with the income growth of successively more affluent households.

Keywords: Capital assets pricing model; Households - Economic aspects (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hrm
Date: 2008
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