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Job postings and aggregate stock returns

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  • Kothari, Pratik
  • O’Doherty, Michael S.

Abstract

The job openings-to-employment ratio (JOE), defined as the number of job postings divided by the employment level, is among the strongest known predictors of the equity premium. We find that JOE outperforms a broad set of over two dozen popular predictor variables in both in-sample and out-of-sample forecasting tests. Forecasts based on JOE also produce gains of 2.91% in annualized certainty equivalent return and 0.20 in annualized Sharpe ratio relative to forecasts based on the historical mean equity premium. The empirical results are consistent with a standard production-based asset pricing model with labor inputs and search frictions.

Suggested Citation

  • Kothari, Pratik & O’Doherty, Michael S., 2023. "Job postings and aggregate stock returns," Journal of Financial Markets, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finmar:v:64:y:2023:i:c:s1386418123000022
    DOI: 10.1016/j.finmar.2023.100804
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    More about this item

    Keywords

    Return predictability; Labor market frictions; Job postings;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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