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Firm Volatility in Granual Networks

Listed author(s):
  • Herskovic, Bernard
  • Kelly, Bryan
  • Lustig, Hanno
  • van Nieuwerburgh, Stijn

Firm volatilities co-move strongly over time, and their common factor is the dispersion of the economy-wide firm size distribution. In the cross section, smaller firms and firms with a more concentrated customer base display higher volatility. Network effects are essential to explaining the joint evolution of the empirical firm size and firm volatility distributions. We propose and estimate a simple network model of firm volatility in which shocks to customers influence their suppliers. Larger suppliers have more customers and the strength of a customer-supplier link depends on the size of the customer. The model produces distributions of firm volatility, size, and customer concentration that are consistent with the data.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 12284.

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Date of creation: Sep 2017
Handle: RePEc:cpr:ceprdp:12284
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