Human capital as anasset class implications from a general equilibrium model

Abstract

This paper derives the value and risk of aggregate human capital in a stochastic equilibrium model with Duffie-Epstein preferences.Athree-factor asset-pricing model is derived, where the factors are the market, the capital share, and investment in human capital. When the model is calibrated to match the historical ratio of wages to consumption in the United States, the weight of human capital in aggregate wealth is estimated to be about 93%, well above most previous estimates, and human capital's riskinessis lower than thatofthe market portfolio.