Do Time-Varying Risk Premiums Explain Labor Market Performance?

33 Pages Posted: 25 Mar 2010  

Long Chen

Cheung Kong Graduate School of Business

Lu Zhang

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Date Written: March 1, 2010

Abstract

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.

Keywords: Time-varying risk premiums, payroll growth, hiring rate, search and matching, time-to-build, time-to-plan

JEL Classification: G31, G12, J23

Suggested Citation

Chen, Long and Zhang, Lu, Do Time-Varying Risk Premiums Explain Labor Market Performance? (March 1, 2010). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1576810

Long Chen

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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