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Cyclical changes in firm volatility

  • Emmanuel De Veirman
  • Andrew Levin

We estimate changes in firm-specific volatility in sales and earnings growth of US firms. We do so using an approach which better captures firm-specific volatility than commonly used dispersion measures do. Our results do not lend strong support to the common view that firm-specific volatility is counter-cyclical. The role of firmspecific volatility in explaining aggregate fluctuations is empirically very limited. This is evidence against the implication of irreversibility and financial accelerator theories that increases in firm-specific volatility cause macroeconomic downturns. Our measure also provides evidence on trends in firm volatility. Earlier findings of a trend increase in the volatility of publicly traded firms are completely overturned when we control for changes in sample composition. At the firm level, the 2007-2009 recession did not end the Great Moderation.

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File URL: http://www.dnb.nl/en/binaries/Working%20Paper%20408_tcm47-302108.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 408.

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Date of creation: Jan 2014
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Handle: RePEc:dnb:dnbwpp:408
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