Do Time-Varying Risk Premiums Explain Labor Market Performance?
Cheung Kong Graduate School of Business
Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)
March 1, 2010
Journal of Financial Economics (JFE), Forthcoming
Within the standard search and matching model, time-to-build implies that high aggregate risk premiums should forecast low employment growth in the short run but high employment growth in the long run. If there is also time-to-plan, high risk premiums should also forecast low net hiring rates in the short run but high net hiring rates in the long run. Our evidence indicates two-quarter time-to-build in the aggregate payrolls data, no time-to-plan in the aggregate hiring data, but two-quarter time-to-plan in the job creation data for manufacturing firms. High payroll growth and high net job creation rate in manufacturing also forecast low stock market excess returns at business cycle frequencies.
Number of Pages in PDF File: 33
Keywords: Time-varying risk premiums, payroll growth, hiring rate, search and matching, time-to-build, time-to-plan
JEL Classification: G31, G12, J23
Date posted: March 25, 2010