What drives the Premium Labour Model, beta instability or human capital? Premium Model outperforms Premium Labour model?
Journal: Northumbria Research Link (Northumbria University)
Year: 2010

We examine the Conditional Capital Asset Pricing Model of Jagannathan and Wang (1996) using UK data and develop a data driven measure of beta instability risk that is pertinent to the UK stock market. This measure is priced over all time periods covered in this study. In contrast to the view that the main part of the Jagannathan and Wang's model is the inclusion of human capital, however, we find that human capital remains insignificant in most tests. Our results revive the importance of beta in