Consumption and Human Capital Risk in the Korean Stock Market

Kim, Sang Su; Choi, Young Min; Son, Sam Ho

Korean Journal of Financial Studies 2013;42(5):837-863.
Published online December 31, 2013.

Sang Su Kim, Young Min Choi, Sam Ho Son

소득계층별 소비 및 인적자본 예측요소 모형을 이용한 자산가격결정

김상수, 최영민, 손삼호

Abstract

This paper examines the long-run consumption expectation factor model and human capital expectation factor model by income classes based on a Korean microeconomic database. In the empirical specification of these models, we found that the performance of these models over sixteen Fama-French size and book-to-market portfolios in KRX (Korean Exchange) as test assets exceeded that of benchmark models such as CAPM, Fama-French three factor model, or CCAPM. This analysis enables one to test the long-run risk hypothesis (LRRH) and the limited stock market participation hypothesis (LMPH) by income class under each model. The main test results are summarized as follows. First, there is no empirical evidence for LRRH but for LMPH via the consumption growth factor model. Second, data is supportive for both of LRRH and LMPH via the human capital factor model. These results are followed by the specific features of the consumption and labor income of each income class over the last thirty years in Korea, namely, the differentiated volatility of consumption and the differentiated sources of income by each income class. These features of consumption and income in Korea suggest the task that the policy authority should pursue in the growth process of the Korean asset market.

Key Words: 소비예측요소 모형,소비위험,인적자본 위험,장기위험 가설,한정적 참여 가설,Consumption Expectation Factor Model,Consumption Risk,Human Capital Risk,Limited Market Participation Hypothesis,LMPH,Long Run Risk Hypothesis,LRRH