We argue that the risk of an asset is measured by the covariance of an asset's return with the return on the aggregate market and human capital. The intertemporal and consumption-based CAPM, along with an extended version of CAPM framework examines the excess return on Fama and French portfolios sorted on size- BE/ME and momentum across the economies. The frequently used priced factors in anomaly literature include, Fama and French factors, momentum, dividend yield, bond market factors, saving, along with aggregate market and human capital component. Using unique panel data sets of emerging and developed economies, the panel regression, IV-GMM with random effects and PCA, finds the aggregate market and human capital are the strongest predictors of asset returns across the economies. Furthermore, the aggregate market and saving are strong predictors of asset return in emerging economies, whereas aggregate market and human capital emerge the best predictors of asset return in developed economies. Interestingly, human capital subsumes the predictive ability of Fama and French factors and becomes redundant along with momentum, dividend yield, and bond market factors.
Roy, R., & Shijin, S. (2018). Dissecting anomalies and dynamic human capital: The global evidence. Borsa Istanbul Review, 18(1), 1–32. https://doi.org/10.1016/j.bir.2017.08.005