Research On The Applicability Of Asset Pricing Model With Human Capital In China

Human capital is a combination of health,knowledge and ability owned by individuals.It not only helps individuals acquire economic wealth and success,but also improves the welfare of the whole society.A large number of existing literature on human capital shows that human capital plays an important role in promoting scientific and technological innovations and achieving sustained economic growth.The related research also shows that human capital plays an important role in promoting China's economic development,improving economic efficiency and reducing regional differences.Human capital is an important part of social wealth,and the amount is huge.Jorgenson and Fraumeni(1989)research calculated that human capital accounted for 90% of the share of wealth.Heaton and Lucus(2000)studies pointed out that human capital accounted for 48% of household wealth and that financial assets accounted for only 6.8% of household wealth.Lustig,van Nieuwerburgh and Verdelhan(2010)estimated that in the United States human capital accounted for 92% of the total wealth,and stock investment was only 2% of the total wealth.The World Bank calculated that more than 60% of the social wealth of most countries in the world was made up of human capital.In 2006,the stock of human capital in the United States amounted to 128 trillion and 240 billion US dollars,the British human capital stock was 21 trillion and 480 billion US dollars,the Chinese human capital stock amounted to 78 trillion and 600 billion US dollars.According to the statistics,the per capita RMB deposit in China in the same year was 12 thousand and 290 yuan,far below the per capita human capital amount.Despite the huge amount of human capital,there is no uniform conclusion about whether the human capital can be traded.Mayers(1972),Bottazzi,Pesenti and van(1996),Wincoop,Baxter and Jermann(1997),and Viceira(2001)believed that human capital was not tradable assets.But in reality,there are lots of credit loans on the future labor income.No matter whether human capital is tradable,there is no doubt that it is one of the largest and most important assets held by laborers.According to the traditional capital asset pricing model,the investors choose the optimal portfolio to maximize the consumption utility.In addition to investing in stocks,bonds and other financial assets,investors can also invest in assets such as real estates,private enterprises and human capital,especially for human capital investment.Real estate,private enterprises and human capital will have an impact on family stock market participation,such as stock holding quantity and holding variety,among which human capital plays a decisive role.Human capital is very important for portfolio selection and asset pricing.In the past few decades,western scholars have combined labor economics and asset pricing theory to do a lot of research on asset pricing.Especially in twenty-first century,western scholars analyze labor market factors on asset stock returns or prices from the research angles such as the labor market frictions,labor market related company characteristics and human capital ect.They carried out interdisciplinary research in labor economics and finance,making the capital asset pricing model more closing to reality.Mayers(1972),Fama and Schwert(1977),Shiller(1995),Campbell(1996),Jagannathan and Wang(1996),Asness,Porter and Stevens(2000),Lettau and Ludvigson(2001),Palacios-Huerta(2003),Boyd,Hu and Jagannathan(2005),Veronesi(2006),Santos Lustig and Van,Nieuwerburgh(2008),Eiling(2013)and other studies suggested that there was a close relationship between the stock market returns and labor market variables(such as human capital or labor income).China's stock market had experienced more than 20 years of development.Both the number and quality of listed companies,the diversification of products,the standardization of transactions,the rationality of investment and the quality of supervision had developped continuously.The stock market had shown a good development trend.With the integration of China's economy with the world,the development of the stock market faces more challenges and opportunities.In the course of development of the stock market in our country,researches on the capital asset pricing model focused on testing the capital asset pricing model,the applicability of the model in China using different periods and different market data.At the same time,Chinese scholars studying the human capital mainly concentrated in the aspects of calculation relations,the property rights of human capital,human capital theory,the relationship between human capital and economic growth and human capital investment,lacking of western interdisciplinary research in labor economics and finance,and research on capital asset pricing model from the angle of labor and the perspective of economics.This thesis studies the stock return and the capital asset pricing model from the perspective of human capital,which undoubtedly will provide a new perspective for the China scholars studying the human capital or the capital asset pricing model,and also provide information to research hotspot and Western scholars for different standards,empirical asset pricing model research.In this context,the influence of human capital on asset pricing is studied in the context of human capital's impact on stock pricing.Because of the huge heterogeneity of human capital,this paper studies the impact of total human capital and industryheterogeneous human capital on stock pricing respectively.In this paper,we will do the research using the two stage cross section regression method which is widely used in the study of asset pricing model in foreign countries.The main contents of the full thesis are as follows:The first chapter: introduction.We start from the background and significance of this paper,clarify the research ideas and technical route,the structure of the design,the research emphasises,difficulties and corresponding solutions.The paper also makes a deep thinking on the innovation and inadequacies of the research.The second chapter: literature review.This paper sorts out the related research of human capital theory and asset pricing model at home and abroad,mainly from three aspects: the development of human capital theory,the development and verification of capital asset pricing model,and the study of asset pricing model from the perspective of labor market.The human capital theory and asset pricing model are sorted out according to the historical evolution.We study the asset pricing model from the perspective of labor market.We divide it into three categories based on the perspective of foreign scholars.The third chapter: the formation mechanism of asset pricing model including human capital.We first investigate the influence mechanism of human capital on the prices of financial assets;secondly,discuss several methods of measurement of human capital,although the method is different,but there are consensus on the differences in human capital.We then discuss the problem of transaction of human capital;finally analyzes the impact of human capital on the asset pricing.In this part,our point is that human capital should be placed in the asset pricing model,and needed to be placed in the asset pricing model,because the nontradable nature determines that it is not in the market asset.Then we summarize the mathematical expression of the representative model.This is also the theoretical basis of this article.The fourth chapter: the analysis and description of the human capital in China.This part is the extension of the third part,which is also a link between the fifth chapter of the empirical analysis of human capital return into the model as a paving.In this part,we discuss three aspects: the total number of human capital is huge,the heterogeneity of human capital exists in different industries,and the human capital gains can be estimated.We also introduce the three models of human capital including the total human capital and industry human capital in the fifth chapter.The extension of the third part is mainly due to the fact that human capital is not tradable,so everyone has risk exposures.The investors hedge the risks to affect the number and price of financial assets.We concretely calculated the trading strategy of the workers in each industry for hedging.The fifth chapter is the empirical study of the impact of human capital gains on stock returns,that is,whether the asset pricing model containing human capital gains is applicable in China.We will express the model of human capital gains as a simple linear model,and empirically examine three asset pricing models including human capital gains by dividing time periods and forming different portfolios.We use the two stage cross section regression method.In the second stage of cross section regression,we use two ways to do research.In order to ensure the robustness of the empirical research,we use the time section,the different time combination and the rolling cross-section regression.The basic conclusion we have obtained is that the asset pricing model,which includes industry human capital gains,is applicable in China.The sixth chapter: verify the applicability of other famous asset pricing models in China,mainly including static CAPM,Fama and French(1993)three factor models,Fama and French(2015)five factor models,and compare them with asset pricing models containing human capital.The seventh chapter: the conclusion and prospect of the research.This part makes a summary of the research and puts forward the prospect of the research.The main innovation of this paper is:1.From the perspective of human capital,especially the heterogeneous angle of human capital industry,we study the effect of human capital yield on stock returns.At present,there is a lack of applicability research of the capital asset pricing model including human capital in China.With the author's limited knowledge,this article should be the first case to make relevant research literature,which is a combination and attempt of interdisciplinary research in labor economics and finance.2.We describe the using of the portfolio method,applicability by two stage cross section to study asset pricing model including human capital.We introduce the grouping method,regression method and test are usd in detail,not only the theoretical interpretation and description of the method,but the flexible use of methods to solve practical problems such as the use of in 25 size-B/M,the 100 size-beta grouping methods that advanced foreign asset pricing model commonly used.In order to ensure the robustness of the study,we use the rolling cross section regression in the second stage of cross-section regression.The main conclusions are as follows: because the total amount of human capital and the average amount of human capital is huge,and human capital has an impact on stock returns,we should consider adding human capital gains in the traditional CAPM model as explanatory variables.The asset pricing model to include the overall human capital income,industry heterogeneity in human capital and general human capital and human capital of the industry orthogonal test,we found that the asset pricing model containing human capital applicable to China in part of the time.