NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Asset Management, Human Capital, and the Market for Risky Assets

Isaac Ehrlich, William A. Hamlen Jr., Yong Yin

NBER Working Paper No. 14340
Issued in September 2008
NBER Program(s):   AP   ED   LS

Risky-asset prices are conventionally modeled as "fully (information-) revealing". Much less work has been done on how prices get to reveal information. Following the "noisy-prices", rational-expectations approach, our answer focuses on the micro-foundations of information acquisition and the role of human capital in asset, or risk, management. We derive testable propositions on how education and other determinants of asset management affect its intensity, risky-asset demand, and portfolio returns. We derive related insights concerning determinants of the level and volatility of asset prices and equity premiums. Using micro-level data on portfolio choices, we find that education raises both the portfolio share of risky assets and overall portfolio returns, while a measure of the opportunity cost of asset management has the opposite effects. Our results indicate a non-trivial return to education in generating non-wage income. They suggest that educational attainments directly affect the distribution of income as well as earnings.

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This paper was revised on December 5, 2011

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Document Object Identifier (DOI): 10.3386/w14340

Published: Isaac Ehrlich, William A. Hamlen Jr., and Yong Yin, "Asset Management, Human Capital, and the Market for Risky Assets", Journal of Human Capital, 2008, 2(3): 217-261. citation courtesy of

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