Labor Market Networks, Fundamentals, and Stock Returns

70 Pages Posted: 27 Oct 2021 Last revised: 1 Dec 2022

See all articles by Joon Woo Bae

Joon Woo Bae

Case Western Reserve University - Weatherhead School of Management

Turan G. Bali

Georgetown University - McDonough School of Business

Ali Sharifkhani

Northeastern University

Xiaofei Zhao

Georgetown University - McDonough School of Business

Date Written: March 2, 2022

Abstract

This paper proposes a measure of labor market connectivity and investigates the impact of productivity-shock-transmission on firm fundamentals and stock returns through labor market networks. We find a significantly positive predictive relations for a focal industry's growth rate of labor productivity, wage, employment, and profitability from its labor-connected-industries. A focal industry's stock return is positively predicted by the past return of its labor-connected-industries, with an annualized return of up to 9% for long-short portfolios. The predictability is driven by positive spillover of productivity shocks across industries and concentrated in stocks with higher arbitrage costs and higher ownership of uninformed investors.

Keywords: Labor network, labor productivity, asset returns.

JEL Classification: G11, G12, G13

Suggested Citation

Bae, Joon Woo and Bali, Turan G. and Sharifkhani, Ali and Zhao, Xiaofei, Labor Market Networks, Fundamentals, and Stock Returns (March 2, 2022). Georgetown McDonough School of Business Research Paper No. 3951333, Available at SSRN: https://ssrn.com/abstract=3951333 or http://dx.doi.org/10.2139/ssrn.3951333

Joon Woo Bae

Case Western Reserve University - Weatherhead School of Management ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States

Turan G. Bali (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)

HOME PAGE: https://sites.google.com/a/georgetown.edu/turan-bali

Ali Sharifkhani

Northeastern University ( email )

360 Huntington Ave.
Boston, MA 02115
United States

Xiaofei Zhao

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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