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

Forthcoming in Review of Asset Pricing Studies

74 Pages Posted: 27 May 2020 Last revised: 4 Jan 2023

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 Exeter Business School - Department of Finance; University of Liverpool Management School

Date Written: January 3, 2023

Abstract

This paper explores the impact of product market competition on the positive relation between labor mobility (LM) and future returns. We develop a production-based model and formalize the intuition that low exposure to systematic risk in a concentrated industry limits LM's amplifying effect on operating leverage. Therefore, the model predicts a stronger positive relation between LM and expected returns for firms in competitive industries. Consistent with the model's prediction, we empirically find 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 (January 3, 2023). Forthcoming in Review of Asset Pricing Studies, 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 Exeter Business School - Department of Finance ( email )

Streatham Court
Exeter, EX4 4PU
United Kingdom

HOME PAGE: http://www.xiaoxiaye.me/

University of Liverpool Management School ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

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