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Firm Volatility in Granular Networks

Author

Listed:
  • Bernard Herskovic
  • Bryan Kelly
  • Hanno Lustig
  • Stijn Van Nieuwerburgh

Abstract

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 customer-supplier links depend on customers size. The model produces distributions of firm volatility, size, and customer concentration consistent with the data.

Suggested Citation

  • Bernard Herskovic & 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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    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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