Essays on Human Capital and on Momentum
How Much is Your Human Capital Worth? This study documents the annual returns on human capital for 22 countries, using a simple present value model as the main measurement framework. The global human capital portfolio yields a compounded annual return in US dollars of 7.2% from 1961 to 2015, with a standard deviation of 11.54%. When human capital is included in the market portfolio, the CAPM, the Fama-French three factor, and the Fama-French five factor models do a good job explaining the positive relationship between betas and average returns for portfolios in the Fama-MacBeth, pooled OLS regression, and panel regression (portfolio-fixed fixed effects model and time-fixed fixed effects model). A new target date fund integrated with human capital challenges the conventional asset allocation policies that most target date funds adopt and represents a new customized retirement solution that meets the different human capital risk profiles of individuals.
Momentum: Does Dual Momentum Work? This study finds that the dual momentum strategy at the asset allocation level, combining time-series momentum and cross-sectional momentum, outperforms the benchmark for a historical simulation, with the limitation that the statistical significance of outperformance is not strong in all formation periods. The dual momentum strategy in the Monte Carlo simulation delivers weaker performance than the historical simulation. The study shows that a stock selection model using dual momentum provides mixed performance in that outperformances are not observed in all cases. The dual momentum strategy can be overlaid to traditional target date funds as it can capture the time varying nature of the equity risk premium and secure a downside protection.
Supervisor: Frank J. Fabozzi, EDHEC Business School
External reviewer: Ahmet K. Karagozoglu, Hofstra University
Other committee member: Nikolaos Tessaromatis, EDHEC Business School