The Human Capital That Matters

Expected Returns and High-Income Households

Sean D. Campbell, Stefanos Delikouras, Danling Jiang, George Korniotis

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We propose a novel human capital model that decomposes aggregate income risk into high- and low-income risk. We find that high-income risk is priced, while low-income risk is insignificant. The high-income factor alone explains 77% of the cross-sectional variation in the twenty-five size and book-to-market portfolios, earns a risk premium of about 7% per year, and its pricing power extends to the full cross-section of individual stocks. It is also related to the value factor, suggesting that the value premium might be compensation for income risk. Overall, our evidence indicates that high-income risk is an important macroeconomic risk factor. Received April 21, 2010; accepted January 25, 2016, by Editor Geert Bekaert.

Original languageEnglish (US)
Pages (from-to)2523-2563
Number of pages41
JournalReview of Financial Studies
Volume29
Issue number9
DOIs
StatePublished - Sep 1 2016

Fingerprint

Expected returns
Human capital
Household income
Income risk
Income
Low income
Factors
Value premium
Market power
Macroeconomics
Human capital model
Risk factors
Risk premium
Book-to-market
Cross section
Market portfolio

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

The Human Capital That Matters : Expected Returns and High-Income Households. / Campbell, Sean D.; Delikouras, Stefanos; Jiang, Danling; Korniotis, George.

In: Review of Financial Studies, Vol. 29, No. 9, 01.09.2016, p. 2523-2563.

Research output: Contribution to journalArticle

@article{ada4331e95794ba1a4eb969ff150a546,
title = "The Human Capital That Matters: Expected Returns and High-Income Households",
abstract = "We propose a novel human capital model that decomposes aggregate income risk into high- and low-income risk. We find that high-income risk is priced, while low-income risk is insignificant. The high-income factor alone explains 77{\%} of the cross-sectional variation in the twenty-five size and book-to-market portfolios, earns a risk premium of about 7{\%} per year, and its pricing power extends to the full cross-section of individual stocks. It is also related to the value factor, suggesting that the value premium might be compensation for income risk. Overall, our evidence indicates that high-income risk is an important macroeconomic risk factor. Received April 21, 2010; accepted January 25, 2016, by Editor Geert Bekaert.",
author = "Campbell, {Sean D.} and Stefanos Delikouras and Danling Jiang and George Korniotis",
year = "2016",
month = "9",
day = "1",
doi = "10.1093/rfs/hhw048",
language = "English (US)",
volume = "29",
pages = "2523--2563",
journal = "Review of Financial Studies",
issn = "0893-9454",
publisher = "Oxford University Press",
number = "9",

}

TY - JOUR

T1 - The Human Capital That Matters

T2 - Expected Returns and High-Income Households

AU - Campbell, Sean D.

AU - Delikouras, Stefanos

AU - Jiang, Danling

AU - Korniotis, George

PY - 2016/9/1

Y1 - 2016/9/1

N2 - We propose a novel human capital model that decomposes aggregate income risk into high- and low-income risk. We find that high-income risk is priced, while low-income risk is insignificant. The high-income factor alone explains 77% of the cross-sectional variation in the twenty-five size and book-to-market portfolios, earns a risk premium of about 7% per year, and its pricing power extends to the full cross-section of individual stocks. It is also related to the value factor, suggesting that the value premium might be compensation for income risk. Overall, our evidence indicates that high-income risk is an important macroeconomic risk factor. Received April 21, 2010; accepted January 25, 2016, by Editor Geert Bekaert.

AB - We propose a novel human capital model that decomposes aggregate income risk into high- and low-income risk. We find that high-income risk is priced, while low-income risk is insignificant. The high-income factor alone explains 77% of the cross-sectional variation in the twenty-five size and book-to-market portfolios, earns a risk premium of about 7% per year, and its pricing power extends to the full cross-section of individual stocks. It is also related to the value factor, suggesting that the value premium might be compensation for income risk. Overall, our evidence indicates that high-income risk is an important macroeconomic risk factor. Received April 21, 2010; accepted January 25, 2016, by Editor Geert Bekaert.

UR - http://www.scopus.com/inward/record.url?scp=85010764311&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85010764311&partnerID=8YFLogxK

U2 - 10.1093/rfs/hhw048

DO - 10.1093/rfs/hhw048

M3 - Article

VL - 29

SP - 2523

EP - 2563

JO - Review of Financial Studies

JF - Review of Financial Studies

SN - 0893-9454

IS - 9

ER -