Labor-Based Asset Pricing

51 Pages Posted: 7 Dec 2017 Last revised: 29 Apr 2019

See all articles by Yukun Liu

Yukun Liu

University of Rochester - Simon Business School

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

Liu, Yukun, Labor-Based Asset Pricing (March 15, 2019). Available at SSRN: or

Yukun Liu (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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