Labor-Based Asset Pricing
51 Pages Posted: 7 Dec 2017 Last revised: 29 Apr 2019
Date Written: March 15, 2019
I establish empirically and theoretically that expectations of returns and cash flows are linked to firms' labor search decisions. Using a dataset that covers the near-universe of online job vacancy postings, I show that vacancy rates negatively predict stock returns and positively predict cash flows in the cross-section of firms and industries. The predictive power of vacancy postings is strengthened for firms facing less favorable labor-market conditions. Incorporating the supply and demand information of the aggregate labor market, I construct a new measure of employment value that strongly predicts aggregate stock and bond market returns, even in the presence of other known predictors. A production-side asset pricing model that combines heterogeneous production decisions with varying firm labor-market conditions generates these empirical findings.
Keywords: Vacancy Posting; Labor-Market Condition; Search-and-Matching; Return; Cash Flow
JEL Classification: E44, G12, J63
Suggested Citation: Suggested Citation