Cross-Sectoral Variation in the Volatility of Plant-Level Idiosyncratic Shocks

34 Pages Posted: 17 Dec 2011 Last revised: 3 Apr 2025

See all articles by Rui Castro

Rui Castro

McGill University - Department of Economics

Gian Luca Clementi

New York University - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER); University of Bologna - Rimini Center for Economic Analysis (RCEA)

Yoon Soo Lee

Sogang University

Date Written: December 2011

Abstract

We estimate the volatility of plant-level idiosyncratic shocks in the U.S. manufacturing sector. Our measure of volatility is the variation in Revenue Total Factor Productivity which is not explained by either industry- or economy-wide factors, or by establishments' characteristics. Consistent with previous studies, we find that idiosyncratic shocks are much larger than aggregate random disturbances, accounting for about 80% of the overall uncertainty faced by plants. The extent of cross-sectoral variation in the volatility of shocks is remarkable. Plants in the most volatile sector are subject to about six times as much idiosyncratic uncertainty as plants in the least volatile. We provide evidence suggesting that idiosyncratic risk is higher in industries where the extent of creative destruction is likely to be greater.

Suggested Citation

Castro, Rui and Clementi, Gian Luca and Lee, Yoon Soo, Cross-Sectoral Variation in the Volatility of Plant-Level Idiosyncratic Shocks (December 2011). NBER Working Paper No. w17659, Available at SSRN: https://ssrn.com/abstract=1973870

Rui Castro (Contact Author)

McGill University - Department of Economics ( email )

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Gian Luca Clementi

New York University - Leonard N. Stern School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

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Yoon Soo Lee

Sogang University ( email )

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