Granular Hypothesis Research Articles

Tail Risk and the Macroeconomy

We propose a new time-varying peaks over threshold model to study tail risk dynamics in equity markets: the laws of motion for the parameters are defined through the score-based approach. We apply the model to daily returns from U.S. size-sorted decile stock portfolios and show that large firms tail risk increases during recessions more than small firms tail risk. Our results are consistent with the granular hypothesis of aggregate fluctuations and we quantify the impact of large firms tail risk shocks on the economy. A measure of tail connectedness is proposed: evidence from international equity markets shows that tail connectedness increases during periods of turmoil.

The granular hypothesis in EU country exports

I investigate whether the ‘granular’ behaviour of aggregate outcomes suggested by Gabaix (2011) is present in country exports by product. Using data for 11 EU countries over the 1988–2011 period, the results show that the idiosyncratic shocks to the main products may have significant effects on total exports for the smaller countries.

The Granular Origins of Aggregate Fluctuations

This paper proposes that idiosyncratic firm-level fluctuations can explain an important part of aggregate shocks, and provide a microfoundation for aggregate productivity shocks. Existing research has focused on using aggregate shocks to explain business cycles, arguing that individual firm shocks average out in aggregate. I show that this argument breaks down if the distribution of firm sizes is fat-tailed, as documented empirically. The idiosyncratic movements of the largest 100 firms in the US appear to explain about one third of variations in output and the Solow residual. This granular hypothesis suggests new directions for macroeconomic research, in particular that macroeconomic questions can be clarified by looking at the behavior of large firms. This paper's ideas and analytical results may also be useful to think about the fluctuations of other economic aggregates, such as exports or the trade balance.

A connectionist account of the hypothesis of granularity and transparency

A connectionist account of the hypothesis of granularity and transparency

The Granular Origins of Aggregate Fluctuations

This paper proposes that idiosyncratic firm-level fluctuations can explain an important part of aggregate shocks, and provide a microfoundation for aggregate productivity shocks. Existing research has focused on using aggregate shocks to explain business cycles, arguing that individual firm shocks average out in aggregate. I show that this argument breaks down if the distribution of firm sizes is fat-tailed, as documented empirically. The idiosyncratic movements of the largest 100 firms in the US appear to explain about one third of variations in output and the Solow residual. This granular hypothesis suggests new directions for macroeconomic research, in particular that macroeconomic questions can be clarified by looking at the behavior of large firms. This paper's ideas and analytical results may also be useful to think about the fluctuations of other economic aggregates, such as exports or the trade balance.

A case study of an English-Japanese bilingual with monolingual dyslexia

We report the case of AS, a 16 year-old English/Japanese bilingual boy, whose reading/writing difficulties are confined to English only. AS was born in Japan to a highly literate Australian father and English mother, and goes to a Japanese selective senior high school in Japan. His spoken language at home is English. AS's reading in logographic Japanese Kanji and syllabic Kana is equivalent to that of Japanese undergraduates or graduates. In contrast, his performance in various reading and writing tests in English as well as tasks involving phonological processing was very poor, even when compared to his Japanese contemporaries. Yet he has no problem with letter names or letter sounds, and his phoneme categorisation is well within the normal range of English native speakers. In order to account for our data that show a clear dissociation between AS's ability to read English and Japanese, we put forward the `hypothesis of granularity and transparency'. It is postulated that any language where orthography-to-phonology mapping is transparent, or even opaque, or any language whose orthographic unit representing sound is coarse (i.e. at a whole character or word level) should not produce a high incidence of developmental phonological dyslexia.