Abstract
We show that labor search frictions are an important determinant of the cross-section of equity returns. Empirically, we find that firms with low loadings on labor market tightness outperform firms with high loadings by 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make dynamic employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time-variation in the efficiency of the aggregate matching technology. Firms with low loadings are more exposed to adverse matching efficiency shocks and require higher expected stock returns.
| Original language | English (US) |
|---|---|
| Journal | Journal of Finance |
| DOIs | |
| State | Accepted/In press - 2017 |
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ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
Cite this
A Labor Capital Asset Pricing Model. / Kuehn, Lars Alexander; Simutin, Mikhail; Wang, Jiaxu.
In: Journal of Finance, 2017.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - A Labor Capital Asset Pricing Model
AU - Kuehn, Lars Alexander
AU - Simutin, Mikhail
AU - Wang, Jiaxu
PY - 2017
Y1 - 2017
N2 - We show that labor search frictions are an important determinant of the cross-section of equity returns. Empirically, we find that firms with low loadings on labor market tightness outperform firms with high loadings by 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make dynamic employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time-variation in the efficiency of the aggregate matching technology. Firms with low loadings are more exposed to adverse matching efficiency shocks and require higher expected stock returns.
AB - We show that labor search frictions are an important determinant of the cross-section of equity returns. Empirically, we find that firms with low loadings on labor market tightness outperform firms with high loadings by 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make dynamic employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time-variation in the efficiency of the aggregate matching technology. Firms with low loadings are more exposed to adverse matching efficiency shocks and require higher expected stock returns.
UR - http://www.scopus.com/inward/record.url?scp=85020235107&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85020235107&partnerID=8YFLogxK
U2 - 10.1111/jofi.12504
DO - 10.1111/jofi.12504
M3 - Article
AN - SCOPUS:85020235107
JO - Journal of Finance
JF - Journal of Finance
SN - 0022-1082
ER -