Employee Sentiment and Stock Returns

53 Pages Posted: 22 Jun 2020

See all articles by Jian Chen

Jian Chen

Xiamen University - School of Economics

Guohao Tang

Hunan University - College of Finance and Statistics

Jiaquan Yao

Jinan University - Management School

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Date Written: May 28, 2020

Abstract

We propose an employee sentiment index, which complements investor sentiment and manager sentiment indices, and find that high employee sentiment predicts a subsequent low market return, significant both in- and out-of-sample. The predictability of the employee sentiment index can also deliver sizable economic gains for mean-variance investors in asset allocation. The employee sentiment’s impact is stronger among employees who work in the headquarters state and among less experienced employees. The economic driving force of the predictability is distinct from those of investor sentiment and manager sentiment: high employee sentiment leads to high contemporaneous wage growth due to immobility, which in turn results in subsequently lower firm cash flow and lower stock return.

Keywords: Employee Sentiment, Glass-door, Return Predictability, Extrapolative Expectation

JEL Classification: C22, C53, G11, G12, G17

Suggested Citation

Chen, Jian and Tang, Guohao and Yao, Jiaquan and Zhou, Guofu, Employee Sentiment and Stock Returns (May 28, 2020). Available at SSRN: https://ssrn.com/abstract=3612922 or http://dx.doi.org/10.2139/ssrn.3612922

Jian Chen

Xiamen University - School of Economics ( email )

422 Siming Nan Road
Xiamen, Fujian 361005
China

Guohao Tang

Hunan University - College of Finance and Statistics ( email )

Lushan Road (S), Yuelu District
Changsha, Hunan 410006
China

Jiaquan Yao

Jinan University - Management School ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

Guofu Zhou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

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