The Risk-Return Trade-Off in Human Capital Investment

IZA Discussion Paper No. 1962

University of Aarhus Department of Economics Working Paper No. 2006-2

41 Pages Posted: 20 Feb 2006

See all articles by Charlotte Christiansen

Charlotte Christiansen

Aarhus University - CREATES

Helena Skyt Nielsen

Aarhus University - Department of Economics and Business Economics; IZA Institute of Labor Economics

Juanna Schrøter Joensen

University of Chicago; Institute for the Study of Labor (IZA)

Date Written: February 2006

Abstract

In this paper we analyze investments in human capital assets in a way which is standard for financial assets, but not (yet) for human capital assets. We study mean-variance plots of human capital assets. We compare the properties of human capital returns using a performance measure and by using tests for mean-variance spanning. A risk-return trade-off is revealed, which is not only related to the length of education but also to the type of education. We identify a range of educations that are efficient in terms of investment goods, and a range of educations that are inefficient, and may be chosen for consumption purposes.

Keywords: educational choice, efficient frontier, human capital investment, mean-variance

JEL Classification: I21, J24

Suggested Citation

Christiansen, Charlotte and Nielsen, Helena Skyt and Joensen, Juanna Schrøter, The Risk-Return Trade-Off in Human Capital Investment (February 2006). IZA Discussion Paper No. 1962, University of Aarhus Department of Economics Working Paper No. 2006-2, Available at SSRN: https://ssrn.com/abstract=320760 or http://dx.doi.org/10.2139/ssrn.320760

Charlotte Christiansen

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus V, DK 8210
Denmark

Helena Skyt Nielsen (Contact Author)

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Alle 4
Aarhus, 8210
Denmark

HOME PAGE: http://person.au.dk/hnielsen@econ.au.dk

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Juanna Schrøter Joensen

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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