The Returns on Human Capital: Good News on Wall Street is Bad News on Main Street / Hanno Lustig, Stijn Van Nieuwerburgh.

Format:

Book

Author/Creator:

Lustig, Hanno.

Contributor:

National Bureau of Economic Research.

Van Nieuwerburgh, Stijn.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11564.

NBER working paper series no. w11564

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Returns on Human Capital

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

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.

Notes:

Print version record

August 2005.