Working Paper: NBER ID: w14340
Authors: Isaac Ehrlich; William A. Hamlen Jr.; Yong Yin
Abstract: 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.
Keywords: Asset Management; Human Capital; Risky Assets
JEL Codes: G00; G11; G12; I0; I20; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| education (I29) | portfolio share of risky assets (G11) |
| education (I29) | overall portfolio returns (G11) |
| education (I29) | information acquisition capabilities (D83) |
| information acquisition capabilities (D83) | portfolio share of risky assets (G11) |
| information acquisition capabilities (D83) | overall portfolio returns (G11) |
| opportunity cost of asset management (G11) | portfolio share of risky assets (G11) |
| opportunity cost of asset management (G11) | overall portfolio returns (G11) |