Human Capital and Risky Asset Allocation

Much research has been done to examine the relation between investors' human capital and their financial asset allocation. While some showed that the value of human capital should be taken into consideration to make financial asset allocation decisions on the composition of investing portfolios, most argued not. In this paper, we selected the monthly return of 9 industrial ETFs from June of 2007 to July 2011, used the present value of total future income as estimate of human capital, and relied on the Mean-Variance Optimal Asset Allocation framework to reexamine if human capital will impact investors optimal financial portfolios. Based on our tests, we found significant connection between human capital and risky asset allocation, which resulted in significant change to weights allocated to the risk assets to create a Mean-Variance optimal portfolio.