Asset Pricing in the Information Age: Employee Expectations and Stock Returns

Jinfei Sheng

The Review of Asset Pricing Studies, 2025, vol. 15, issue 1, 74-101

Abstract: Firms with more positive employee expectations tend to earn higher future returns, delivering annualized abnormal returns ranging from 8% to 11%. Employees’ forward-looking expectations are a stronger return predictor than employee satisfaction, which is backward-looking. Employee expectations can predict returns because they reflect information about firms’ fundamentals that has not yet been reflected in traditional data sources, such as earnings reports. Hedge funds actively trade on this information, consistent with a decay in forecasting power over longer holding horizons. Overall, this paper highlights the importance of labor in asset pricing, specifically from the perspective of employee expectations. (JEL G12, G14)

JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2025
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