A labor news hedge portfolio and the cross-section of expected stock returns
Journal of Empirical Finance, 2018, vol. 48, issue C, 123-139
Using the relation between the surprise component in labor statistics and an asset’s return on labor news announcement days, we derive a labor beta. By adding a labor news hedge portfolio which is long in high labor beta assets and short in low labor beta assets to the market portfolio, we obtain a labor news model. This model describes the cross-section of expected stock returns just as well as or even better than alternative multifactor models. The estimated premium for bearing labor income risk varies between three and five percentage points per annum.
Keywords: Labor news model; Fama–French factors; Hedge portfolios (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:48:y:2018:i:c:p:123-139
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