Labor hiring, investment, and stock return predictability in the cross section

• Autores: Frederico Belo, Xiaoji Lin, Santiago Bazdresch
• Localización: Journal of Political Economy, ISSN-e 1537-534X, Vol. 122, Nº. 1, 2014, págs. 129-177
• Idioma: inglés
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• Resumen

  • 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.