Asset Pricing and Optimal Portfolio Choice in the Presence of Human Capital

11 Pages Posted: 16 Feb 2007

See all articles by Shijin S.

Shijin S.

Indian Institute of Technology (IIT), Madras

G. ArunKumar

Indian Institute of Technology (IIT), Madras

Sanghamitra Bhattacharyya

Indian Institute of Technology (IIT), Madras

Date Written: December 18, 2006

Abstract

This study analyses the ability of human capital and other factors affecting share prices like, dividend, treasury bills, and government bonds, in predicting variation of stock returns on the Indian stock market for the period of 1996:04-2005:06. We use variations of Campbell (1996) equilibrium multifactor model to analyze the pattern of security prices. Furthermore we use VAR estimates, Granger Causality/Block Exogeneity Wald Tests, Seemingly Unrelated Regression Estimation, and Impulse Responses to estimate asset returns.

Our results show that Human capital is a significant factor affecting share prices and labor has a causal relationship with security prices. There is also a causal relationship between stock returns and dividend, and vise versa.

Keywords: Capital Asset Pricing Model (CAPM), Intertemporal Capital Asset Pricing (ICAPM), Equilibrium Multifactor model, Human capital, VAR estimates, Granger Causality/Block Exogeneity Wald Tests, Seemingly Unrelated Regression Estimation (SURE), Impulse Response Functions (IRF)

Suggested Citation

S., Shijin and ArunKumar, G. and Bhattacharyya, Sanghamitra, Asset Pricing and Optimal Portfolio Choice in the Presence of Human Capital (December 18, 2006). 10th Capital Markets Conference, Indian Institute of Capital Markets Paper. Available at SSRN: https://ssrn.com/abstract=962007 or http://dx.doi.org/10.2139/ssrn.962007

Shijin S. (Contact Author)

Indian Institute of Technology (IIT), Madras ( email )

Sardar Patel Road
Guindy
Chennai, TN Tamil Nadu 600036
India

G. ArunKumar

Indian Institute of Technology (IIT), Madras ( email )

Sardar Patel Road
Guindy
Chennai, TN Tamil Nadu 600036
India

Sanghamitra Bhattacharyya

Indian Institute of Technology (IIT), Madras ( email )

Sardar Patel Road
Guindy
Chennai, TN Tamil Nadu 600036
India

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