Asset Management, Human Capital, and the Market for Risky Assets

Abstract

Conventional finance models treat risky‐asset prices as “fully (information) revealing.” Less work exists on how prices become information revealing. Our answer focuses on the micro foundations of information acquisition and the role of human capital in “asset management.” We derive testable propositions on how education and the opportunity cost of asset management affect risky‐asset demand, portfolio returns, asset‐price volatility, and equity premiums. Using micro‐level data, we find that education raises the portfolio share of risky assets and overall portfolio returns, whereas wage rates exert opposite effects. We find that the rate of return to education in generating nonwage income is nontrivial.