Job postings and aggregate stock returns

Pratik Kothari and O’Doherty, Michael S.

Journal of Financial Markets, 2023, vol. 64, issue C

Abstract: The job openings-to-employment ratio (JOE), defined as the number of job postings divided by the employment level, is among the strongest known predictors of the equity premium. We find that JOE outperforms a broad set of over two dozen popular predictor variables in both in-sample and out-of-sample forecasting tests. Forecasts based on JOE also produce gains of 2.91% in annualized certainty equivalent return and 0.20 in annualized Sharpe ratio relative to forecasts based on the historical mean equity premium. The empirical results are consistent with a standard production-based asset pricing model with labor inputs and search frictions.

Keywords: Return predictability; Labor market frictions; Job postings (search for similar items in EconPapers)
JEL-codes: E23 E24 G11 G12 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:64:y:2023:i:c:s1386418123000022

DOI: 10.1016/j.finmar.2023.100804

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