Journal Article

Human Capital as an Asset Class Implications from a General Equilibrium Model

Miguel Palacios

in The Review of Financial Studies

Published on behalf of The Society for Financial Studies

Volume 28, issue 4, pages 978-1023
Published in print April 2015 | ISSN: 0893-9454
Published online October 2014 | e-ISSN: 1465-7368 | DOI: https://dx.doi.org/10.1093/rfs/hhu073

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This paper derives the value and risk of aggregate human capital in a stochastic equilibrium model with Duffie-Epstein preferences. A three-factor asset-pricing model is derived, where the factors are the market, the capital share, and investment in human capital. When the model is calibrated to match the historical ratio of wages to consumption in the United States, the weight of human capital in aggregate wealth is estimated to be about 93%, well above most previous estimates, and human capital's riskiness is lower than that of the market portfolio.

Keywords: G12; G11; E24

Journal Article.  16863 words.  Illustrated.

Subjects: Economics ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment