The cross‐sectional return predictability of employment growth: A liquidity risk explanation

Liu, Weimin; Luo, Di; Park, Seyoung; Zhao, Huainan

Abstract

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 employment growth and stock returns. We find strong empirical evidence supporting the link between employment growth and liquidity risk. Stocks of high-EG firms are more liquid and exposed to lower liquidity risk than stocks of low-EG firms. After adjusting for liquidity risk, employment growth loses its power to predict returns.

Citation

Liu, W., Luo, D., Park, S., & Zhao, H. (2022). The cross‐sectional return predictability of employment growth: A liquidity risk explanation. Financial Review, 57(1), 155-178. https://doi.org/10.1111/fire.12279

• Journal Article Type: Article
• Acceptance Date: Jul 15, 2021
• Online Publication Date: Aug 11, 2021
• Publication Date: 2022-02
• Deposit Date: Jan 20, 2022
• Publicly Available Date: Aug 12, 2023
• Journal: Financial Review
• Print ISSN: 0732-8516
• Electronic ISSN: 1540-6288
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 57
• Issue: 1
• Pages: 155-178
• DOI: https://doi.org/10.1111/fire.12279
• Keywords: Employment growth premium; Liquidity risk; Labor hiring
• Public URL: https://nottingham-repository.worktribe.com/output/7281503
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/fire.12279
• Additional Information: This is the peer reviewed version of the following article: Liu, W, Luo, D, Park, S, Zhao, H. The cross-sectional return predictability of employment growth: A liquidity risk explanation. Financial Review. 2022; 57: 155– 178, which has been published in final form at https://doi.org/10.1111/fire.12279. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited