TY  - JOUR
AU  - Lustig,Hanno
AU  - Nieuwerburgh,Stijn Van
TI  - The Returns on Human Capital: Good News on Wall Street is Bad News on Main Street
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11564
PY  - 2005
Y2  - August 2005
UR  - http://www.nber.org/papers/w11564
L1  - http://www.nber.org/papers/w11564.pdf
N1  - Author contact info:
Hanno Lustig
UCLA Anderson School of Management
110 Westwood Plaza, Suite C413
Los Angeles, CA 90095-1481
Tel: 310/825-1011
Fax: 310/825-9528
E-Mail: hlustig@anderson.ucla.edu

Stijn Van Nieuwerburgh
Stern School of Business
New York University
44 W 4th Street, Suite 9-120
New York, NY 10012
Tel: 646/284-4141
Fax: 646/284-4141
E-Mail: svnieuwe@stern.nyu.edu
M2  - featured in NBER digest on 2005-08-22
AB  - We use a standard single-agent model to conduct a simple consumption growth accounting exercise. Consumption growth is driven by news about current and expected future returns on the market portfolio. The market portfolio includes financial and human wealth. We impute the residual of consumption growth innovations that cannot be attributed to either news about financial asset returns or future labor income growth to news about expected future returns on human wealth, and we back out the implied human wealth and market return process. This accounting procedure only depends on the agent's willingness to substitute consumption over time, not her consumption risk preferences. We find that innovations in current and future human wealth returns are negatively correlated with innovations in current and future financial asset returns, regardless of the elasticity of intertemporal substitution. The evidence from the cross-section of stock returns suggests that the market return we back out of aggregate consumption innovations is a better measure of market risk than the return on the stock market.
ER  -