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

The cross-sectional return predictability of employment growth: a liquidity risk explanation
The cross-sectional return predictability of employment growth: a liquidity risk explanation
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 firms. After adjusting for liquidity risk, employment growth loses its power to predict returns.
0732-8516
Liu, Weimin
e81ff941-d869-4f9a-ad99-eaa0f9675480
Luo, Di
cc1b0fa7-f630-45dc-ab05-495f9023148f
Park, Seyoung
7edd7f6a-f916-47cb-ae99-07814518351a
Zhao, Huainan
c1914fa7-b5f5-454a-9ef0-a44114ecfe8b
Liu, Weimin
e81ff941-d869-4f9a-ad99-eaa0f9675480
Luo, Di
cc1b0fa7-f630-45dc-ab05-495f9023148f
Park, Seyoung
7edd7f6a-f916-47cb-ae99-07814518351a
Zhao, Huainan
c1914fa7-b5f5-454a-9ef0-a44114ecfe8b

Liu, Weimin, Luo, Di, Park, Seyoung and Zhao, Huainan (2021) The cross-sectional return predictability of employment growth: a liquidity risk explanation. Financial Review. (In Press)

Record type: Article

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 firms. After adjusting for liquidity risk, employment growth loses its power to predict returns.

Text
liq_emp_FRR207072021 - Accepted Manuscript
Restricted to Repository staff only until 14 July 2022.
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Accepted/In Press date: 14 July 2021

Identifiers

Local EPrints ID: 450459
URI: http://eprints.soton.ac.uk/id/eprint/450459
ISSN: 0732-8516
PURE UUID: d85521f4-9827-4411-a3c2-951f183742c0
ORCID for Di Luo: ORCID iD orcid.org/0000-0001-7405-6347

Catalogue record

Date deposited: 28 Jul 2021 16:32
Last modified: 13 Dec 2021 03:21

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Contributors

Author: Weimin Liu
Author: Di Luo ORCID iD
Author: Seyoung Park
Author: Huainan Zhao

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