The Cross-sectional Return Predictability of Employment Growth: A Liquidity Risk Explanation

TY - JOUR

T1 - The Cross-sectional Return Predictability of Employment Growth

T2 - A Liquidity Risk Explanation

AU - Liu, Weimin

AU - Luo, Di

AU - Park, Seyoung

AU - Zhao, Huainan

N1 - © 2021 The Eastern Finance Association

PY - 2022/2

Y1 - 2022/2

N2 - Employment growth (EG) is related to liquidity fundamentals of investment opportunities, firm health, and information environment and quality. This, in turn, implies that liquidity risk may play a role in explaining the relation between EG and stock returns. We find strong empirical evidence supporting the link between EG and liquidity risk. Stocks of high-EG firms are more liquid and exposed to lower liquidity risk than stocks of low-EG firms. After adjusting for liquidity risk, EG loses its power to predict returns.

AB - Employment growth (EG) is related to liquidity fundamentals of investment opportunities, firm health, and information environment and quality. This, in turn, implies that liquidity risk may play a role in explaining the relation between EG and stock returns. We find strong empirical evidence supporting the link between EG and liquidity risk. Stocks of high-EG firms are more liquid and exposed to lower liquidity risk than stocks of low-EG firms. After adjusting for liquidity risk, EG loses its power to predict returns.

KW - employment growth premium

KW - labor hiring

KW - liquidity risk

U2 - 10.1111/fire.12279

DO - 10.1111/fire.12279

M3 - Article

SN - 1540-6288

VL - 57

SP - 155

EP - 178

JO - Financial Review

JF - Financial Review

IS - 1

ER -