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Labor Links, Comovement, and Predictable Returns

Published online by Cambridge University Press:  29 May 2025

Yukun Liu  and
Xi Wu
Yukun Liu*
Affiliation:
University of Rochester Simon Business School
Xi Wu
Affiliation:
University of California at Berkeley Haas School of Business xiwu@haas.berkeley.edu
*
yliu229@simon.rochester.edu (corresponding author)
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Abstract

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Using firms’ online job postings, we identify economically related peer firms in the labor market. Firms’ labor peers are vastly different from their industry peers, where the overlap is about 20%. Returns of labor-linked firms strongly comove, suggesting common responses to labor market shocks on average. However, industry shocks can affect firms outside the industry through the labor network, leading to substitution effects between labor peers. Last, we show that investors do not promptly incorporate news about labor-linked firms, leading to predictable subsequent returns. A long-short strategy exploiting this delay generates an average annualized excess return of 9%.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 61 , Issue 1 , February 2026 , pp. 1 - 31
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee, John Campbell, Huaizhi Chen, Thierry Foucault (the editor), Stefano Giglio, Will Goetzmann, Isaac Hacamo, Ron Kaniel, Peter Kelly, Charles Lee, Alan Moreira, Tobias Moskowitz, Aleh Tsyvinski, Song Yang, Harold Zhang and seminar participants at the Arrowstreet, Accredited Financial Analyst (AFA), asset quality review (AQR), Chicago Quantitative Alliance, the Hong Kong University of Science and Technology (HKUST) Finance Symposium, Labor and Finance Group, the PanAgora Asset Management, Paris December Finance Meeting, Q-group, WFA, Yale University, and the Young Scholar Finance Consortium for helpful comments. We are also grateful to the Q-Group for the 2018 Jack Treynor Prize. Yukun Liu thanks the International Center of Finance at Yale University for financial support and Bledi Taska and Will Markow for providing us with the Burning Glass Technologies data. Earlier versions of the paper were circulated under the titles “Labor Market Competitor Network and the Transmission of Shocks” and “Labor Links and Shock Transmission.”

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