Return Cross-Predictability in Firms with Similar Employee Satisfaction

55 Pages Posted: 16 Oct 2019

See all articles by Xueying Bian

Xueying Bian

Singapore Management University

Sergei Sarkissian

McGill University; University of Edinburgh

Jun Tu

Singapore Management University - Lee Kong Chian School of Business

Ran Zhang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Date Written: October 15, 2019

Abstract

We study the return predictability of similar employee satisfaction (SES) firms using new firm-ranking data of employee satisfaction from Glassdoor. We find that the returns of firm peers with SES have a predictive power for focal firm returns. A long-short portfolio sorted on the lagged returns of SES firm peers yields a significant Fama and French (2018) six-factor alpha of 135 bps per month. This result is distinct from industry and inter-firm momentum effects and cannot be explained by risk-based arguments. Our tests suggest that investors’ limited attention is the primary reason of firms’ underreaction to their SES firm returns.

Keywords: Earnings announcements, Employment growth, Limits to Arbitrage, Market efficiency

JEL Classification: G11, G14, G15

Suggested Citation

Bian, Xueying and Sarkissian, Sergei and Tu, Jun and Zhang, Ran, Return Cross-Predictability in Firms with Similar Employee Satisfaction (October 15, 2019). Available at SSRN: https://ssrn.com/abstract=3469633 or http://dx.doi.org/10.2139/ssrn.3469633

Xueying Bian

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore

Sergei Sarkissian

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada
514-398-4876 (Phone)
514-398-3876 (Fax)

HOME PAGE: http://sergei-sarkissian.com

University of Edinburgh

29 Buccleuch Pl.
Edinburgh, Scotland EH8 9JS
United Kingdom

Jun Tu

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
#04-01
Singapore, 178899
Singapore

Ran Zhang (Contact Author)

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, 200030
China

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