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Local labor market and the cross section of stock returns

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  • Ge, Yao
  • Qiao, Zheng
  • Zheng, Hao

Abstract

Local labor market pooling is a crucial benefit in the economics of agglomeration (Marshall, 1890). To capture the pooling function, we employ segment information and occupation statistics to capture average pairwise labor force similarities for each focal firm. We find that firms in thicker local labor markets are underpriced and display significantly positive stock returns afterwards. The return predictability of local labor market measure is concentrated in non-mega cap firms; high-tech firms; younger firms; and firms with more high-skilled labor, less routine tasks, and lower labor intensity. Our results are robust to a battery of control variables and alternative measure specifications.

Suggested Citation

  • Ge, Yao & Qiao, Zheng & Zheng, Hao, 2023. "Local labor market and the cross section of stock returns," Journal of International Money and Finance, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:jimfin:v:138:y:2023:i:c:s0261560623001262
    DOI: 10.1016/j.jimonfin.2023.102925
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    More about this item

    Keywords

    Agglomeration; Local labor market; Stock returns; Mispricing;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G4 - Financial Economics - - Behavioral Finance
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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