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A labor news hedge portfolio and the cross-section of expected stock returns

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  • Stotz, Olaf

Abstract

Using the relation between the surprise component in labor statistics and an asset’s return on labor news announcement days, we derive a labor beta. By adding a labor news hedge portfolio which is long in high labor beta assets and short in low labor beta assets to the market portfolio, we obtain a labor news model. This model describes the cross-section of expected stock returns just as well as or even better than alternative multifactor models. The estimated premium for bearing labor income risk varies between three and five percentage points per annum.

Suggested Citation

  • Stotz, Olaf, 2018. "A labor news hedge portfolio and the cross-section of expected stock returns," Journal of Empirical Finance, Elsevier, vol. 48(C), pages 123-139.
    • Handle: RePEc:eee:empfin:v:48:y:2018:i:c:p:123-139
    DOI: 10.1016/j.jempfin.2018.06.009
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    Cited by:

    1. Maximilian Renz & Olaf Stotz, 2021. "A macroeconomic hedge portfolio and the cross section of stock returns," Review of Financial Economics, John Wiley & Sons, vol. 39(1), pages 73-94, January.

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    More about this item

    Keywords

    Labor news model; Fama–French factors; Hedge portfolios;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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