Business Cycle, Reallocation of Labor and Asset Prices

28 Pages Posted: 14 Jul 2019

See all articles by Anton Petukhov

Anton Petukhov

Massachusetts Institute of Technology (MIT), Sloan School of Management, Economics, Finance, Accounting (EFA)

Date Written: January 25, 2016

Abstract

Empirical literature on reallocation of resources during business cycles provides an evidence of increased reallocation of labor across firms during downturns. In this paper I build a theoretical model with search frictions in labor market, that is consistent with this observation, and study implications of search and match frictions for the cross section of stock returns. In the model firms having more growth opportunities benefit from recessions due to more slack in the labor market which allows them to expand quicker and convert higher share of their growth opportunities into profitable projects. This feature generates a return spread between value and growth firms. In the model sorts of stocks based on different growth indicators yield patterns documented empirically in previous studies.

Keywords: Asset pricing, cross section of stocks, risk premium, value premium, labor, search frictions

JEL Classification: G1, G12, J00

Suggested Citation

Petukhov, Anton, Business Cycle, Reallocation of Labor and Asset Prices (January 25, 2016). Available at SSRN: https://ssrn.com/abstract=3418590 or http://dx.doi.org/10.2139/ssrn.3418590

Anton Petukhov (Contact Author)

Massachusetts Institute of Technology (MIT), Sloan School of Management, Economics, Finance, Accounting (EFA) ( email )

Cambridge, MA 02139
United States

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