Job Postings and Aggregate Stock Returns
42 Pages Posted: 10 Sep 2018 Last revised: 22 May 2019
Date Written: July 30, 2018
A standard production-based asset pricing model with labor frictions implies a negative relation between job postings and expected stock market returns. As the discount rate rises in recessions, the present value of hiring declines and firms optimally post fewer job openings. We confirm this prediction in our empirical analysis. The job openings-to-employment ratio (JOE) is a strong time-series predictor of aggregate stock returns and outperforms an array of popular forecasting variables in both in-sample and out-of-sample tests. Forecasts based on JOE also lead to large gains in certainty equivalent returns for investors making asset allocation decisions.
Keywords: Return predictability, labor market frictions, job postings
JEL Classification: E23, E24, G11, G12
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