Journal of Political Economy Vol. 128 No. 11 2020

Firm Volatility in Granular Networks

Bernard Herskovic¹; Bryan Kelly²; Hanno Lustig^2,3; Stijn Van Nieuwerburgh

¹ University of California, Los Angeles · ² National Bureau of Economic Research · ³ Stanford University

Abstract

Firm volatilities comove 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.

DOI

10.1086/710345

Volume

128

Issue

11

Pages

4097-4162

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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