Labor-Based Asset Pricing

Abstract

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 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.

Keywords: Vacancy Posting; Labor-Market Condition; Search-and-Matching; Return; Cash Flow

JEL Classification: E44, G12, J63