Hiring patterns, equity returns and the economy
- Belo et al (2014) noted that firms with high hiring rates tend to have lower future equity returns, because they face less acute labour-market friction and so can react to shocks more quickly than low-hiring firms
- In the event of a positive shock, these firms are able to grow faster and make profits more quickly; they therefore carry a lower risk premium, while not needing to offer high returns to investors — while the opposite is expected of low-hiring firms
- Fathom’s US hiring ratio equity factor — which measures the difference in stock returns between companies that hire less and those that hire more — helps us understand how changes in employment influence stock prices throughout the business cycle
