A Labor Capital Asset Pricing Model

Lars Alexander Kuehn, Mikhail Simutin, Jiaxu Wang

Research output: Contribution to journalArticlepeer-review

42 Scopus citations


We show that labor search frictions are an important determinant of the cross-section of equity returns. Empirically, we find that firms with low loadings on labor market tightness outperform firms with high loadings by 6% annually. We propose a partial equilibrium labor market model in which heterogeneous firms make dynamic employment decisions under labor search frictions. In the model, loadings on labor market tightness proxy for priced time-variation in the efficiency of the aggregate matching technology. Firms with low loadings are more exposed to adverse matching efficiency shocks and require higher expected stock returns.

Original languageEnglish (US)
Pages (from-to)2131-2178
Number of pages48
JournalJournal of Finance
Issue number5
StatePublished - Oct 2017

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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