Abstract(s)
We estimate firm–level idiosyncratic risk in the U.S. manufacturing sector. Our proxy for risk is the volatility of the portion of growth in sales or TFP which is not explained by either industry– or economy–wide factors, or firm characteristics
systematically associated with growth itself. We find that idiosyncratic risk
accounts for about 90% of the overall uncertainty faced by firms. The extent of
cross–sectoral variation in idiosyncratic risk is remarkable. Firms in the most
volatile sector are subject to at least three times as much uncertainty as firms
in the least volatile. Our evidence indicates that idiosyncratic risk is higher in industries where the extent of creative destruction is likely to be greater.