Labor Hiring, Investment, and Stock Return Predictability in the Cross Section

Frederico Belo, Xiaoji Lin and Santiago Bazdresch ()
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Frederico Belo: University of MN

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We study the impact of labor market frictions on asset prices in the cross section of US publicly traded firms. On average, firms with low hiring rates have higher future stock returns than firms with high hiring rates, a difference of 5.2% per annum. Interpreting a hiring decision as analogous to an investment decision, we propose a dynamic neoclassical investment-based model with labor and capital adjustment costs to explain this hiring return spread. Firms that are hiring relatively more have lower macroeconomic risk which explains why high hiring rates predicts low stock returns. The model matches the observed levels of the hiring return spread, key properties of the firm-level hiring and investment rates, and other empirical regularities. Our analysis suggest that labor market frictions can have a significant impact on asset prices in financial markets.

JEL-codes: E22 E23 E44 G12 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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Citations: View citations in EconPapers (26)

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Related works:
Journal Article: Labor Hiring, Investment, and Stock Return Predictability in the Cross Section (2014)
Working Paper: Labor hiring, investment and stock return predictability in the cross section (2009)
Working Paper: Labor Hiring, Investment and Stock Return Predictability in the Cross Section (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2012-17

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