Human Capital and Capital Market Equilibrium


Eugene F. Fama

University of Chicago, Chicago, IL 60637


G. William Schwert

University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research


Journal of Financial Economics, 4 (January 1977) 95-125


This paper finds that extending popular two-parameter models of capital market equilibrium to allow for the existence of non-marketable human capital does not provide better empirical descriptions of the expected return-risk relation for marketable securities than those that come out of simpler models. This conclusion arises from the fact that relations between the return on human capital and the returns on various marketable assets are weak, so that the model that includes human capital leads to estimates of risk for marketable assets indistinguishable from those of simpler models.

Key words: Human capital, Capital asset pricing model

JEL Classifications: G12, G14, J33


Cited 58 times in the SSCI and SCOPUS through 2014
© Copyright 1977, Elsevier
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