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

Weimin Liu, Di Luo, Seyoung Park, Huainan Zhao

Research output: Journal PublicationReview articlepeer-review

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 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.

Original languageEnglish
JournalFinancial Review
Early online date11 Aug 2021
DOIs
Publication statusPublished Online - 11 Aug 2021

Keywords

  • employment growth premium
  • labor hiring
  • liquidity risk

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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