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http://ssrn.com/abstract=2186197
 
 

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Firm Volatility in Granular Networks


Bryan T. Kelly


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Hanno N. Lustig


UCLA - Anderson School of Management; National Bureau of Economic Research (NBER)

Stijn Van Nieuwerburgh


New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

March 27, 2013

Fama-Miller Working Paper
Chicago Booth Research Paper No. 12-56

Abstract:     
We propose a model of firm volatility based on customer-supplier connectedness. We assume that 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. When the size distribution becomes more dispersed, economic activity is concentrated among a smaller number of firms, the typical supplier becomes less diversified and its volatility increases. The model is consistent with a set of new stylized facts. At the macro level, the firm volatility distribution is driven by firm size dispersion; the latter explains common movements in firm-level total and residual volatility. At the micro level, we show that the concentration of customer networks is an important determinant of firm-level volatility.

Number of Pages in PDF File: 66

Keywords: Volatility, networks, firm growth, firm volatility

JEL Classification: G12, G15, F31

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Date posted: December 7, 2012 ; Last revised: October 15, 2013

Suggested Citation

Kelly, Bryan T. and Lustig, Hanno N. and Van Nieuwerburgh, Stijn, Firm Volatility in Granular Networks (March 27, 2013). Fama-Miller Working Paper; Chicago Booth Research Paper No. 12-56. Available at SSRN: http://ssrn.com/abstract=2186197 or http://dx.doi.org/10.2139/ssrn.2186197

Contact Information

Bryan T. Kelly (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8359 (Phone)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Hanno N. Lustig
UCLA - Anderson School of Management ( email )
405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Stijn Van Nieuwerburgh
New York University Stern School of Business, Department of Finance ( email )
44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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