Does higher firm profit dispersion reflect greater micro uncertainty?

Jin Yeub Kim, Myungkyu Shim

Research output: Contribution to journalArticle

Abstract

Countercyclical dispersion of firm outcomes (micro dispersion) is commonly used as a proxy for micro uncertainty. In this paper, we characterize conditions under which micro dispersion and micro uncertainty co-move positively in the context of a large Cournot economy with dispersed information and a financial market that aggregates private information. We also show that the parameter region supporting the positive co-movement shrinks when (1) public signal is endogenous through financial asset prices or (2) strategic substitutability in firms’ output decisions is weak. Our analysis raises a cautionary note on using micro dispersion as a measure of uncertainty shocks.

Original languageEnglish
Pages (from-to)35-38
Number of pages4
JournalEconomics Letters
Volume176
DOIs
Publication statusPublished - 2019 Mar 1

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Profit
Uncertainty
Financial assets
Asset prices
Comovement
Private information
Substitutability
Cournot
Financial markets

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

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Does higher firm profit dispersion reflect greater micro uncertainty? / Kim, Jin Yeub; Shim, Myungkyu.

In: Economics Letters, Vol. 176, 01.03.2019, p. 35-38.

Research output: Contribution to journalArticle

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