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Investor Sentiment and Employment

Published online by Cambridge University Press:  16 September 2019

Maurizio Montone Open the ORCID record for Maurizio Montone [Opens in a new window]  and
Remco C. J. Zwinkels Open the ORCID record for Remco C. J. Zwinkels [Opens in a new window]
Maurizio Montone
Affiliation:
Montone, m.montone@uu.nl, Utrecht University
Remco C. J. Zwinkels*
Affiliation:
Zwinkels, r.zwinkels@vu.nl, Vrije Universiteit Amsterdam
*
Zwinkels (corresponding author), r.zwinkels@vu.nl
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Abstract

We develop a multi-country model with moral hazard and noise traders and show that investor sentiment should affect employment growth both domestically and abroad. Using a large sample of international industry-level data, we find strong support for the model’s predictions. We show that U.S. investor sentiment has a positive association with labor market conditions around the world, due to spillover effects as well as foreign direct investments from the United States. We also find that U.S. sentiment amplifies the negative effect of local financial crises on job losses, which supports the idea that financial development has a “dark side.”

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 5 , August 2020 , pp. 1581 - 1618
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019

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Footnotes

We thank Jennifer Conrad (the editor), Tony Cookson, Ingolf Dittmann, David Dorn, Byoung-Hyoun Hwang, Giovanni Immordino, Torsten Jochem, Matti Keloharju, Doron Kliger, Andres Liberman, Albert Menkveld, Evren Ors, Marco Pagano, Florian Peters, Giovanni Pica (the referee), Valerio Poti, Rachel Shalom-Gilo, Ken Singleton, Elvira Sojli, David Solomon, Geoffrey Tate, Patrick Verwijmeren, Qingwei Wang, Toni Whited, Wei Xiong, and Fernando Zapatero and participants at the 2017 Netherlands Economists Day (NED) Conference at the Dutch Central Bank, University College Dublin, the 2015 International Finance and Banking Society (IFABS) Corporate Finance Conference at the University of Oxford, the Helsinki Finance Seminar, the 2015 Israel Behavioral Finance Conference at Tel Aviv University, Vrije Universiteit Amsterdam, the 2014 Auckland Finance Meeting, the 2014 Research in Behavioral Finance Conference, and the Erasmus Research Institute of Management for many insightful comments and suggestions.

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