Human Capital Migration Networks and Stock Returns

We find that inter-firm human capital migration network centrality (HCMNC) is a strong positive predictor of future stock returns after controlling for firm characteristics and risk. We construct the human capital migration network using publicly available data from LinkedIn. A long-short value-weighted portfolio of firms ranked on HCMNC earned an annualized four-factor alpha of 5.5%. We find stronger return predictive power of HCMNC for firms with lower investor attention and higher valuation uncertainty. HCMNC is also associated with higher future operating performance, higher future profitability, and positive future earnings announcement surprises. The evidence is consistent with the market underreacting to HCMNC.