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

Abstract

Conventional finance models treat risky‐asset prices as “fully (information) revealing.” Less work exists on how prices become information revealing. Our answer focuses on the micro foundations of information acquisition and the role of human capital in “asset management.” We derive testable propositions on how education and the opportunity cost of asset management affect risky‐asset demand, portfolio returns, asset‐price volatility, and equity premiums. Using micro‐level data, we find that education raises the portfolio share of risky assets and overall portfolio returns, whereas wage rates exert opposite effects. We find that the rate of return to education in generating nonwage income is nontrivial.

Health, Education, and the Post-Retirement Evolution of Household Assets

“…Married persons with a college degree or more hold a much greater proportion in "risky" (but higher expected return) equities than those with less than a high school degree-55.0 percent versus 31.6 percent-and much less in low-return checking accounts and CDs-22.0 percent versus 47.8 percent. 4 These results are consistent with Ehrlich, Hamlen, and Yin's (2008) findings on the holdings of risky assets by different educational groups. The data in the bottom panel of Table 4-2 only pertain to financial assets held outside of personal retirement accounts.…”

“…Haliassos and Bertaut (1995), Bertaut and Starr-McCluer (2001), and Campbell (2006) show that more educated investors are more likely to own stocks. Ehrlich, Hamlen, and Yin (2008) find a correlation between a household's education level and the portfolio share allocated to risky assets. They also find that more educated households earn higher returns.…”

Health, Education, and the Postretirement Evolution of Household Assets

“…Haliassos and Bertaut (1995), Bertaut and Starr-McCluer (2001), and Campbell (2006) show that more educated investors are more likely to own stocks. Ehrlich, Hamlen, and Yin (2008) find a correlation between a household’s education level and the portfolio share allocated to risky assets. They also find that more educated households earn higher returns.…”

Student Awareness of Costs and Benefits of Educational Decisions: Effects of an Information Campaign

“…An insight of the literature on financial literacy is that consumers invest in financial knowledge to the point at which their marginal time and money costs of doing so are equated to their marginal benefits (Lusardi and Mitchell 2014). The literature on optimal portfolio management (Ehrlich, Hamlen, and Yin 2008;Ehrlich, Shin, and Yin 2011) suggests that human capital itself raises a person's efficiency in acquiring information. Given that there is a time cost to investing in information processing (even if provided freely) and differential ability in processing information (influenced by preexisting human capital), a real possibility is that career-related information interventions may not be particularly effective at getting to "hard-to-reach" students at risk of dropping out early.…”