Journal Article

The Robustness of the Conditional CAPM with Human Capital

Ignacio Palacios-Huerta

in Journal of Financial Econometrics

Volume 1, issue 2, pages 272-289
Published in print June 2003 | ISSN: 1479-8409
Published online June 2003 | e-ISSN: 1479-8417 | DOI: http://dx.doi.org/10.1093/jjfinec/nbg012
The Robustness of the Conditional CAPM with Human Capital

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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.

Keywords: CAPM; human capital; securiy returns; labor market

Journal Article.  0 words. 

Subjects: Financial Markets ; Econometrics and Mathematical Economics

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