Labor Flow Shocks Matter for Asset Pricing

51 Pages Posted: 28 Jan 2022 Last revised: 9 Feb 2023

See all articles by Jian Chen

Jian Chen

Xiamen University - School of Economics

Chunmian Ge

South China University of Technology

Jiaquan Yao

Jinan University - Management School

Guofu Zhou

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

Date Written: August 3, 2022

Abstract

Using a novel dataset based on individual resumes of public firm employees, we propose a monthly index of labor flows, and decompose it into an expected level and an unexpected shock components. We find that the shocks strongly predict short-term market excess returns, while the levels do not. The substantial return predictability remains out-of-sample, and delivers sizable economic value in asset allocation. Our findings cannot be explained by existing labor-related predictors and common economic variables. In exploiting the underlying economic mechanism, we show that concerns about economic conditions are more likely to influence return predictability.

Keywords: Labor flow, Labor friction, Hiring rate, Stock market, Return predictability

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

Suggested Citation

Chen, Jian and Ge, Chunmian and Yao, Jiaquan and Zhou, Guofu, Labor Flow Shocks Matter for Asset Pricing (August 3, 2022). Available at SSRN: https://ssrn.com/abstract=4016154 or http://dx.doi.org/10.2139/ssrn.4016154

Jian Chen (Contact Author)

Xiamen University - School of Economics ( email )

422 Siming Nan Road
Xiamen, Fujian 361005
China

Chunmian Ge

South China University of Technology ( email )

School of Business Administration
South China University of Technology
Guangzhou, Guangdong 510640
China

HOME PAGE: http://sites.google.com/site/gechunmian/

Jiaquan Yao

Jinan University - Management School ( email )

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

HOME PAGE: http://www.jiaquanyao.com

Guofu Zhou

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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