NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Johan Walden

Haas School of Business
University of California at Berkeley
545 Student services building, #1900
Berkeley, CA 94720
Tel: 510-643-0547

E-Mail: walden@haas.berkeley.edu.

NBER Working Papers and Publications

January 2010Limited Capital Market Participation and Human Capital Risk
with Jonathan Berk: w15709
The non-tradability of human capital is often cited for the failure of traditional asset pricing theory to explain agents' portfolio holdings. In this paper we argue that the opposite might be true --- traditional models might not be able to explain agent portfolio holdings because they do not explicitly account for the fact that human capital does trade (in the form of labor contracts). We derive wages endogenously as part of a dynamic equilibrium in a production economy. Risk is shared in labor markets because firms write bilateral labor contracts that insure workers, allowing agents to achieve a Pareto optimal allocation even when the span of asset markets is restricted to just stocks and bonds. Capital markets facilitate this risk sharing because it is there that firms offload t...

Published: Jonathan B. Berk & Johan Walden, 2013. "Limited Capital Market Participation and Human Capital Risk," Review of Asset Pricing Studies, vol 3(1), pages 1-37.

 
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