Job Postings and Aggregate Stock Returns

42 Pages Posted: 10 Sep 2018 Last revised: 22 May 2019

See all articles by Pratik Kothari

Pratik Kothari

University of Missouri at Columbia - Department of Finance

Michael S. O'Doherty

University of Missouri at Columbia - Department of Finance

Date Written: July 30, 2018

Abstract

A standard production-based asset pricing model with labor frictions implies a negative relation between job postings and expected stock market returns. As the discount rate rises in recessions, the present value of hiring declines and firms optimally post fewer job openings. We confirm this prediction in our empirical analysis. The job openings-to-employment ratio (JOE) is a strong time-series predictor of aggregate stock returns and outperforms an array of popular forecasting variables in both in-sample and out-of-sample tests. Forecasts based on JOE also lead to large gains in certainty equivalent returns for investors making asset allocation decisions.

Keywords: Return predictability, labor market frictions, job postings

JEL Classification: E23, E24, G11, G12

Suggested Citation

Kothari, Pratik and O'Doherty, Michael S., Job Postings and Aggregate Stock Returns (July 30, 2018). Available at SSRN: https://ssrn.com/abstract=3223141 or http://dx.doi.org/10.2139/ssrn.3223141

Pratik Kothari (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

MO
United States

Michael S. O'Doherty

University of Missouri at Columbia - Department of Finance ( email )

Robert J. Trulaske, Sr. College of Business
401 Cornell Hall
Columbia, MO 65211
United States

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