Investor Sentiment and Employment
Journal of Financial and Quantitative Analysis, forthcoming
50 Pages Posted: 14 Jun 2014 Last revised: 17 Feb 2019
Date Written: February 1, 2019
We develop a multi-country model with moral hazard and noise traders, and show that investor sentiment should affect employment growth both domestically and abroad. Using a large sample of international industry-level data, we find strong support for the model's predictions. We show that US investor sentiment has a positive association with labor market conditions around the world, due to spillover effects as well as foreign direct investments from the US. We also find that US sentiment amplifies the negative effect of local financial crises on job losses, which supports the idea that financial development has a "dark side".
Keywords: Investor sentiment; Labor market; Financial development, Financial crises
JEL Classification: G10, G30, F21, J30
Suggested Citation: Suggested Citation