Household Wealth Is Mostly Human Capital: Value Depends On Industry, Occupation And Education: Differences In Industry Human Capital Values Affect Sector Expected Stock Returns

Posted by Milton Recht:

From The Journal Of Finance, "Industry-Specific Human Capital, Idiosyncratic Risk, and the Cross-Section of Expected Stock Returns" by Esther Eiling:

a significant fraction of wealth for virtually all investors is human capital. Heaton and Lucas (2000) report that about 48% of household wealth is due to human capital, while only 6.8% is invested in financial assets. Lustig, van Nieuwerburgh, and Verdelhan (2010) even estimate human capital to be 90% of total wealth, while the share of equities is only 2%. This suggests that, in theory, human capital should matter for portfolio choice and asset pricing.***The nature of human capital is investor-specific and depends on, for example, age, education, occupation, or the industry or firm in which the investor works.***This paper shows that human capital heterogeneity [differences] affects the cross-section of expected stock returns. I focus on industry-specific human capital. In the labor economics literature, several papers document the existence of significant inter-industry wage differentials (e.g., Katz and Summers (1989), Neal (1995), and Weinberg (2001)), suggesting that labor income and human capital are determined in part by industry affiliation.