Product Market Competition, Labor Mobility, and the Cross-Section of Stock Returns

62 Pages Posted: 27 May 2020 Last revised: 28 Mar 2021

See all articles by Shamim Ahmed

Shamim Ahmed

University of Liverpool Management School

Ziwen Bu

University of Birmingham - Birmingham Business School

Xiaoxia Ye

University of Liverpool Management School

Date Written: February 11, 2021

Abstract

This paper explores the impact of product market competition on the positive relation between labor mobility (LM) and future stock returns. We develop a production-based model, which predicts a stronger positive relation between LM and expected returns for firms in highly competitive industries. Consistent with the model's prediction, empirical results from double-sorted portfolios and cross-sectional regressions suggest that LM predicts returns only among firms in competitive industries. This evidence suggests that the intensity of competition in firms' product market potentially drives the positive LM-return relation.

Keywords: Labor mobility; Product market competition; Risk premium; Stock returns

JEL Classification: G12; G14; J69

Suggested Citation

Ahmed, Shamim and Bu, Ziwen and Ye, Xiaoxia, Product Market Competition, Labor Mobility, and the Cross-Section of Stock Returns (February 11, 2021). Available at SSRN: https://ssrn.com/abstract=3588433 or http://dx.doi.org/10.2139/ssrn.3588433

Shamim Ahmed (Contact Author)

University of Liverpool Management School ( email )

Ziwen Bu

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Xiaoxia Ye

University of Liverpool Management School ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

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