Working Paper: CEPR ID: DP9894
Authors: Rüdiger Bachmann; Steffen Elstner; Atanas Hristov
Abstract: Firms expect certain investment expenditures. Firms realize certain investment expenditures. The difference is an investment surprise. With the help of the IFO Investment Survey for the German manufacturing sector we measure firms? (quantitative) investment expectations and firms? (quantitative) investment realizations on a yearly basis and construct a panel of firm-level investment innovations. This paper documents its cross-sectional and time-series properties and thus provides direct, econometrics-free quantitative discipline on the idiosyncratic shock processes used in structural heterogeneous-firm models. We find: 1) there is excess kurtosis in investment innovations, but no significant skewness; 2) the cross-sectional average of investment innovations is procyclical; 3) the cross-sectional dispersion of investment innovations is countercyclical; 4) the cross-sectional skewness and kurtosis of investment innovations is largely acyclical; 5) the cross-sectional average of the firm-individual time series volatility of investment innovations is countercyclical and highly positively correlated with the cross-sectional dispersion of investment innovations; 6) measures of firm-idiosyncratic risk have sizeable fluctuations, in the range of aggregate investment fluctuations.
Keywords: Expectation Errors; Firm Data; Higher Moments; Idiosyncratic Shocks; Investment; Survey Data
JEL Codes: E20; E22; E30; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| excess kurtosis in investment innovations (C46) | structural shocks firms are exposed to are drawn from a symmetric distribution with fat tails (C46) |
| cross-sectional average of investment innovations (E22) | procyclical behavior (E32) |
| cross-sectional dispersion of investment innovations (G11) | countercyclical behavior (E32) |
| cross-sectional skewness and kurtosis of investment innovations (C46) | acyclical behavior (E32) |
| cross-sectional average of individual time-series volatility of investment innovations (C22) | countercyclical behavior (E32) |
| cross-sectional average of individual time-series volatility of investment innovations (C22) | positively correlated with cross-sectional dispersion of investment innovations (C46) |
| measures of firm-idiosyncratic risk (G32) | fluctuations corresponding with aggregate investment fluctuations (E22) |