Stock Market Investment
Report

Stock Market Investment

The Role of Human Capital

Kartik Athreya, Felicia F. Ionescu and Urvi Neelakantan
Federal Reserve Board, 2015
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Editorial Rating

7

Qualities

  • Innovative

Recommendation

In this pioneering analysis, economists Kartik Athreya, Felicia F. Ionescu and Urvi Neelakantan explain why people invest in equity markets at much lower rates than financial theory and portfolio analysis projections suggest they should. What those predictions overlook, according to the authors, is the opportunity young adults have to invest in themselves through education, rather than in risky financial assets such as stocks. Economists, statisticians and other quantitatively skilled readers will appreciate this report’s rigorous analysis, but others may find this mathematically intensive study a tough slog. Nonetheless, getAbstract suggests this notable paper to financial advisers, strategic planners in investment firms and education professionals.

Summary

Conventional models of investor behavior don’t seem to reflect reality. Most suggest that almost all households should invest in stocks, but, in practice, relatively few do. People face a trade-off between investing in their own development, such as through education, and investing in equity assets. It makes sense for young people to borrow money to finance their education and to further their own human capital. As individuals age, however, the opportunity to realize a return from human capital investment diminishes because of a shorter time horizon in ...

About the Authors

Kartik Athreya is senior vice president and director of research at the Federal Reserve Bank of Richmond, where Urvi Neelakantan is an economist. Felicia F. Ionescu is a senior economist with the Board of Governors of the Federal Reserve System.

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