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Investor Sentiment and Employment

Author

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  • Montone, Maurizio
  • Zwinkels, Remco C. J.

Abstract

We develop a multi-country model with moral hazard and noise traders and show that investor sentiment should affect employment growth both domestically and abroad. Using a large sample of international industry-level data, we find strong support for the model’s predictions. We show that U.S. investor sentiment has a positive association with labor market conditions around the world, due to spillover effects as well as foreign direct investments from the United States. We also find that U.S. sentiment amplifies the negative effect of local financial crises on job losses, which supports the idea that financial development has a “dark side.”

Suggested Citation

  • Montone, Maurizio & Zwinkels, Remco C. J., 2020. "Investor Sentiment and Employment," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(5), pages 1581-1618, August.
    • Handle: RePEc:cup:jfinqa:v:55:y:2020:i:5:p:1581-1618_6
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    References listed on IDEAS

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    1. Malcolm Baker & Jeremy C. Stein & Jeffrey Wurgler, 2003. "When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 969-1005.
    2. Baker, Malcolm & Wurgler, Jeffrey & Yuan, Yu, 2012. "Global, local, and contagious investor sentiment," Journal of Financial Economics, Elsevier, vol. 104(2), pages 272-287.
    3. Rajeev Dehejia & Adriana Lleras-Muney, 2007. "Financial Development and Pathways of Growth: State Branching and Deposit Insurance Laws in the United States, 1900–1940," Journal of Law and Economics, University of Chicago Press, vol. 50(2), pages 239-272.
    4. R. David Mclean & Mengxin Zhao, 2014. "The Business Cycle, Investor Sentiment, and Costly External Finance," Journal of Finance, American Finance Association, vol. 69(3), pages 1377-1409, June.
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    Cited by:

    1. Mr. Philip Barrett & Sophia Chen & Miss Mali Chivakul & Ms. Deniz O Igan, 2021. "Pricing Protest: The Response of Financial Markets to Social Unrest," IMF Working Papers 2021/079, International Monetary Fund.
    2. Herculano, Miguel C. & Lütkebohmert, Eva, 2023. "Investor sentiment and global economic conditions," Journal of Empirical Finance, Elsevier, vol. 73(C), pages 134-152.
    3. Gomes, Orlando, 2015. "Optimal resource allocation in a representative investor economy," Economic Modelling, Elsevier, vol. 50(C), pages 72-84.

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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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