Labor Links, Comovement and Predictable Returns

Abstract

Using firms’ online job postings, we identify economically related peer firms in the labor market. Firms’ labor peers are vastly different from their industry peers, where the overlap is about 20 percent. Returns of labor-linked firms strongly comove, and the comovement is larger when hiring is difficult. Real economic activities such as hiring and operations also comove for labor-linked firms beyond traditional industry boundaries. We show that investors do not promptly incorporate news about labor-linked firms, leading to predictable subsequent returns. A long-short strategy exploiting this delay generates an average annualized excess return of nine percent.

Keywords: Labor-Linked Firms, Job Postings, Predictable Returns, Limited Attention

JEL Classification: G01, M2, D22, E24, J23, J24