Cross-Sectoral Variation in The
Volatility of Plant-Level Idiosyncratic Shocks
by Rui Castro, Gian Luca Clementi, and Yoonsoo
Lee
Journal of Industrial Economics, Volume 63,
Issue 1, March 2015, pages 1-29
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.