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Does Main Street Benefit from What Benefits Wall Street?

Published online by Cambridge University Press:  12 January 2023

Sean J. Flynn Jr.  and
Andra Ghent Open the ORCID record for Andra Ghent [Opens in a new window]
Sean J. Flynn Jr.
Affiliation:
Cornell University SC Johnson College of Business [email protected]
Andra Ghent*
Affiliation:
The University of Utah David Eccles School of Business
*
[email protected] (corresponding author)
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Abstract

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Yes. We show that aggregate stock returns predict aggregate U.S. employment, despite the industrial composition of publicly traded firms differing markedly from that of all firms, and the representativeness of public firms declining over time. We also show that appropriately reweighted stock returns predict industry and local labor market outcomes. We find the strongest evidence of an alignment of interests between shareholders and workers in the manufacturing sector, despite its declining labor share of output. Our findings suggest that at quarterly frequencies, product demand shocks are more important drivers of industry- and city-level stock returns than technology shocks.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 3 , May 2024 , pp. 1300 - 1336
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 (https://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), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

The authors began this work while Ghent was a faculty member at the University of Wisconsin–Madison. We are grateful to the staff at YTS for their assistance with the data. We thank Zhi Da (the referee), Thierry Foucault (the editor), and seminar participants at the Bank of Canada, CUHK, the Federal Reserve Bank of Cleveland, the Federal Reserve Bank of Dallas, the Federal Reserve Bank of San Francisco, the Federal Reserve Board of Governors, Northeastern University, Purdue University, Tulane University, UC Irvine, UNC-Chapel Hill, the 2021 FMA Annual Meeting, and the 2022 Eastern Finance Annual Meeting for feedback on earlier drafts. We also thank Greg Brown, Eric Ghysels, Paige Nelson, Paige Ouimet, Paul Tetlock, Harry Turtle, and Ross Valkanov for helpful conversations.

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