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Do time-varying risk premiums explain labor market performance?

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  • Chen, Long
  • Zhang, Lu
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Abstract

Within the standard search and matching model, time-to-build implies that high aggregate risk premiums should forecast low employment growth in the short run but high employment growth in the long run. If there is also time-to-plan, high risk premiums should forecast low net hiring rates in the short run but high net hiring rates in the long run. Our evidence indicates two-quarter time-to-build in the aggregate payroll data, no time-to-plan in the aggregate hiring data, but two-quarter time-to-plan in the job creation data for manufacturing firms. High payroll growth and high net job creation rate in manufacturing also forecast low stock market excess returns at business cycle frequencies.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 99 (2011)
Issue (Month): 2 (February)
Pages: 385-399

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Handle: RePEc:eee:jfinec:v:99:y:2011:i:2:p:385-399

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Time-varying risk premiums Payroll growth Hiring rate Search and matching frictions Labor markets;

References

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Citations

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Cited by:
  1. Bakshi, Gurdip & Panayotov, George & Skoulakis, Georgios, 2011. "Improving the predictability of real economic activity and asset returns with forward variances inferred from option portfolios," Journal of Financial Economics, Elsevier, vol. 100(3), pages 475-495, June.
  2. Jones, Christopher S. & Tuzel, Selale, 2013. "Inventory investment and the cost of capital," Journal of Financial Economics, Elsevier, vol. 107(3), pages 557-579.
  3. Fong, Wai Mun, 2012. "Do expected business conditions explain the value premium?," Journal of Financial Markets, Elsevier, vol. 15(2), pages 181-206.

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