Human Capital and Popular Investment Advice

14 Pages Posted: 12 Feb 2004

See all articles by Glenn Boyle

Glenn Boyle

University of Canterbury - Economics and Finance; Sapere Research Group

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 5, 2004

Abstract

Popular investment advice recommends that the stock/bond and stock/wealth ratios should rise with investor risk tolerance and investment horizon respectively, prescriptions that are difficult to reconcile with standard models of portfolio choice. Canner et al. (1997) point out that the first piece of advice can potentially be explained by human capital considerations, but only by invalidating the second piece of advice. We show that extending the mean-variance model to include human capital can simultaneously justify both recommendations, so long as the correlation between human capital returns and stock market returns lies within a range determined by market and investor-specific parameters. Historical data from 11 countries generally satisfy this requirement, although the statistical precision of our estimates is fairly weak.

Keywords: asset allocation, human capital, investment advice

JEL Classification: G11

Suggested Citation

Boyle, Glenn and Guthrie, Graeme, Human Capital and Popular Investment Advice (February 5, 2004). Available at SSRN: https://ssrn.com/abstract=499442 or http://dx.doi.org/10.2139/ssrn.499442

Glenn Boyle (Contact Author)

University of Canterbury - Economics and Finance ( email )

Private Bag 4800
Christchurch
New Zealand

Sapere Research Group ( email )

Level 9, Pencarrow House
1 Willeston St
Wellington, 6140
New Zealand

Graeme Guthrie

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6140
New Zealand
64 4 463 5763 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
191
Abstract Views
1,063
rank
161,139
PlumX Metrics