Human capital returns , human capital contracts , risk and return of non-traded assets , mean-variance spanning tests
Abstract:
Human capital contracts give private investors the right to a share
of students' future earnings in return for a financial contribution during
their studies. Although still rarely used, human capital contracts could
not only help to complement limited public funding for higher education
but might also be an alternative to traditional financial assets. Using a
dataset covering 1% of German households for the period 1995-2009, we
analyse the return and risk properties that can be expected from human
capital contracts. We find that funds of human capital contracts provide
low risk exposures to stocks and bonds. As a result, risk-adjusted returns
of funds of human capital contracts are significantly positive under fairly
weak conditions. Thus, human capital contracts potentially offer large
diversification benefits for investors and might be a way to improve the
state's educational budget.
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