Working Paper: NBER ID: w10922
Authors: Diego Comin; Sunil Mulani
Abstract: This paper documents the diverging trends in volatility of the growth rate of sales at the aggregate and firm level. We establish that the upward trend in micro volatility is not simply driven by a compositional bias in the sample studied. We argue that this new fact sheds some shadows on the proposed explanations for the decline in aggregate volatility and that, given the symmetry of the diverging trends at the micro and macro level, a common explanation is likely. We conclude by describing one such theory.
Keywords: firm-level volatility; aggregate volatility; Compustat
JEL Codes: E3; F1; D2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| variance decomposition of aggregate sales volatility (C69) | identify sources of volatility changes (E32) |
| compositional bias in the sample (C83) | upward trend in micro volatility (E32) |
| firm characteristics (L20) | upward trend in firm-level volatility (E32) |
| upward trend in firm-level volatility (E32) | divergence in trends of sales growth (F62) |
| firm-level volatility (D25) | reacts more quickly to economic cycles than aggregate volatility (E32) |
| mechanisms behind declining macro volatility (E32) | increases in micro volatility (E39) |