Risk Premiums, Risk-Adjusted Excess Returns and Health Care Premiums

Abstract

This study finds firms that pay their employees’ health-care premiums earn average positive risk premiums and positive risk-adjusted excess returns. The problem of the study is to analyze risk premiums and risk adjusted returns of an equal-weighted portfolio of firms that pay 100% of their employee’s health-care premiums. The results show that the portfolio average risk premiums are positive and greater than the market risk premiums from 2007 to 2011 (except 2008). The portfolio average risk-adjusted excess returns are positive for the 3-year holding period intervals and statistically significant for the 5-year holding period. The implication of this study is that it is important for firms to invest in their people in the form of competitive compensation package, and this investment will pay off in the long run as evidenced from the capital market.