A Labor Capital Asset Pricing Model

61 Pages Posted: 1 Sep 2012 Last revised: 14 Feb 2017

Lars-Alexander Kuehn

Carnegie Mellon University - David A. Tepper School of Business

Mikhail Simutin

University of Toronto - Rotman School of Management

Jessie Jiaxu Wang

Arizona State University (ASU) - W.P. Carey School of Business

Date Written: October 12, 2016

Abstract

We show that labor search frictions are an important determinant of the cross-section of equity returns. Empirically, we find that firms with low loadings on labor market tightness outperform firms with high loadings by 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make dynamic employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time variation in the efficiency of the aggregate matching technology. Firms with low loadings are more exposed to adverse matching efficiency shocks and require higher expected stock returns.

Keywords: Cross-sectional asset pricing, labor search frictions, matching efficiency

JEL Classification: E24, G12, J21

Suggested Citation

Kuehn, Lars-Alexander and Simutin, Mikhail and Wang, Jessie Jiaxu, A Labor Capital Asset Pricing Model (October 12, 2016). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2139850 or http://dx.doi.org/10.2139/ssrn.2139850

Lars-Alexander Kuehn (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Mikhail Simutin

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada

HOME PAGE: http://www.rotman.utoronto.ca/simutin

Jessie Jiaxu Wang

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://www.jiaxuwang.com

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