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Firm Volatility in Granular Networks

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  • Bryan Kelly
  • Hanno Lustig
  • Stijn Van Nieuwerburgh

Abstract

We propose a network model of firm volatility in which the customers' growth rate shocks influence the growth rates of their suppliers, larger suppliers have more customers, and the strength of a customer-supplier link depends on the size of the customer firm. Even though all shocks are i.i.d., the network model produces firm-level volatility and size distribution dynamics that are consistent with the data. In the cross section, larger firms and firms with less concentrated customer networks display lower volatility. Over time, the volatilities of all firms co-move strongly, and their common factor is concentration of the economy-wide firm size distribution. Network effects are essential to explaining the joint evolution of the empirical firm size and firm volatility distributions.

Suggested Citation

  • Bryan Kelly & Hanno Lustig & Stijn Van Nieuwerburgh, 2013. "Firm Volatility in Granular Networks," NBER Working Papers 19466, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19466
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    More about this item

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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