Return and risk of human capital contracts

Tim Kroencke, Grit Muehler and Maresa Sprietsma

No 13-108, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

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

Keywords: human capital returns; human capital contracts; risk and return of non-traded assets; mean-variance spanning tests (search for similar items in EconPapers)
JEL-codes: G11 G12 I21 J24 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-hrm and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:13108

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