Market Exposure and Endogenous Firm Volatility over the Business Cycle
Pablo D'Erasmo () and
Hernan Moscoso Boedo
American Economic Journal: Macroeconomics, 2016, vol. 8, issue 1, 148-98
We propose a theory of endogenous firm-level risk over the business cycle based on endogenous market exposure. Firms that reach a larger number of markets diversify market-specific demand shocks at a cost. The model is driven only by total factor productivity shocks and captures the observed countercyclity of firm-level risk. Using a panel of US firms we show that, consistent with our theoretical model, measures of market reach are procyclical, and the countercyclicality of firm-level risk is driven by those firms that adjust their market exposure, which are larger than those that do not. (JEL D21, D22, E23, E32, L25)
JEL-codes: D21 D22 E23 E32 L25 (search for similar items in EconPapers)
Note: DOI: 10.1257/mac.20130011
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Working Paper: Market exposure and endogenous firm volatility over the business cycle (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:8:y:2016:i:1:p:148-98
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