Abstract
We document that the aggregate hiring rate of publicly traded firms in the U.S. economy negatively predicts stock market returns and long-term cash flows, and positively predicts short-term cash flows. In addition, through a variance decomposition, we show that the time-series variation in the aggregate hiring rate is mainly driven by changes in discount rates and short-term expected cash flows, with no contribution from variation in long-term expected cash flows. We estimate a neoclassical dynamic model with labor market frictions and show that labor adjustment costs and time-varying risk are essential for the model to replicate the empirical patterns.
Original language | English (US) |
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Pages (from-to) | 3825-3860 |
Number of pages | 36 |
Journal | Review of Financial Studies |
Volume | 36 |
Issue number | 9 |
DOIs | |
State | Published - Sep 2023 |
Bibliographical note
Publisher Copyright:© 2023 The Author(s).