Forecasted Unemployment and the Cross-Section of Stock Returns

44 Pages Posted: 8 Apr 2022 Last revised: 2 Nov 2022

See all articles by Baris Ince

Baris Ince

University College Dublin

Date Written: March 3, 2022


This paper provides evidence to the importance of revisions in expected unemployment rate in the cross-sectional pricing of individual stocks. We introduce a measure of unemployment beta which quantifies monthly-varying stock sensitivity to the innovations in forecasted unemployment rate. Stocks in the lowest unemployment beta decile generate 7% more annualized risk-adjusted return compared to stocks in the highest unemployment beta decile. The unemployment premium is higher during low economic activity, high economic uncertainty, and high unemployment periods. The premium is robust to various regression specifications which account for various risk factors, and macroeconomic and financial variables. Finally, (labor) operating leverage is an important factor in the cross-sectional pricing of unemployment beta.

Keywords: Unemployment, revisions in expected unemployment rate, return predictability, operating leverage

JEL Classification: G11, G12, E24, E44.

Suggested Citation

Ince, Baris, Forecasted Unemployment and the Cross-Section of Stock Returns (March 3, 2022). Available at SSRN: or

Baris Ince (Contact Author)

University College Dublin ( email )

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