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A Labor Capital Asset Pricing Model
Social Science Research Network
We show that labor search frictions are an important determinant of the cross section of equity returns. In the data, sorting firms based on their loading on labor market tightness, the key statistic of search models, generates a spread in future returns of 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make optimal employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time variation indoi:10.2139/ssrn.2348526 fatcat:a6adaj5zpzgpnoiunlnpslwqra