Does Main Street Benefit from What Benefits Wall Street?

Abstract

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.

Trade Uncertainty and U.S. Bank Lending

“…we rely on recent evidence that listed firms' equity valuations strongly predict economic activity at the industry level, especially for manufacturing sectors (Flynn and Ghent, 2022), which are overrepresented in banks' loan portfolios. We then calculate the change in average trade uncertainty for each sector between 2016-2017 (before the Trade War) and 2018-2019 (during the Trade War).…”

Trade Uncertainty and U.S. Bank Lending

“…We obtain average uncertainty at the 3-digit NAICS sector level as the average of firm-level uncertainty across firms in each sector. 8 For the imputation of average uncertainty from listed firms to all firms, we rely on recent evidence that listed firms' equity valuations strongly predict economic activity at the industry level, especially for manufacturing sectors (Flynn and Ghent, 2022), which are overrepresented in banks' loan portfolios. We then calculate the change in average trade uncertainty for each sector between 2016-2017 (before the Trade War) and 2018-2019 (during the Trade War).…”