Labor Hiring, Investment, and Stock Return Predictability in the Cross Section
We study the impact of labor market frictions on asset prices. In the cross section of US firms, a 10 percentage point increase in the firm’s hiring rate is associated with a 1.5 percentage point decrease in the firm’s annual risk premium. We propose an investment-based model with stochastic labor adjustment costs to explain this finding. Firms with high hiring rates are expanding firms that incur high adjustment costs. If the economy experiences a shock that lowers adjustment costs, these firms benefit the most. The corresponding increase in firm value operates as a hedge against these shocks, explaining the lower risk premium of these firms in equilibrium.
Year of publication: |
2014
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Authors: | Belo, Frederico ; Lin, Xiaoji ; Bazdresch, Santiago |
Published in: |
Journal of Political Economy. - University of Chicago Press. - Vol. 122.2014, 1, p. 129-129
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Publisher: |
University of Chicago Press |
Saved in:
Online Resource
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