Firm Level Uncertainty Instruments

Download Firm Level Uncertainty Data

Firm-by-year uncertainty instruments from 1997 to 2016 for US CRSP-Compustat firms developed by Iván Alfaro (BI Norwegian Business School), Nicholas Bloom (Stanford Economics), and Xiaoji Lin (Minnesota Carlson School).

In The Finance Uncertainty Multiplier, Alfaro, Bloom, and Lin (ABL) develop firm-level instruments to address endogeneity concerns in measuring the causal impact of uncertainty shocks. Their identification strategy exploits industry differential exposure to 10 different sources of aggregate uncertainty (implied by forward-looking options) to identify exogenous variation in firm-level volatility.

The firm-level uncertainty instruments include the second moment exposures to 7 bilateral exchange rates with the US Dollar (the Euro, Canadian Dollar, Japanese Yen, British Pound, Swiss Franc, Australian Dollar, and Swedish Krona, which are the US Fed Board "Major Currencies"), crude-oil prices, Economic Policy Uncertainty, and 10-year Treasuries. The dataset contains all 10 second moment instruments and their respective first moment controls for a panel of 9,458 US firms listed on the US stock market between 1997 and 2016. ABL's dataset provides different firm identifiers, including Compustat GVKey, CRSP Permno, CUSIP, and TICKER codes. Codes for 3-digit Standard Industrial Classifications are also included. As such, the measures can also be used as industry level instruments for uncertainty applied, for example, to industry, private firm, or establishment datasets.

The baseline instruments are constructed using forward-looking option-implied volatilities. However, the ABL dataset also provides extended firm-level series constructed using realized volatilities in early years when implied volatilities are not available for each instrument.

Furthermore, using daily stock market information ABL provide two annual measures for firm-level uncertainty: CRSP realized volatility and 365-day option-implied volatility. Where realized volatility is estimated as the 12-month standard deviation of daily CRSP returns (usually based on 252 days of trading return data in a year, 200 minimum), and implied volatility is constructed using 365-day implied volatility of at-the-money-forward call options.

The dataset should be cited as: Alfaro, Ivan, Nicholas Bloom, and Xiaoji Lin, The Finance Uncertainty Multiplier (2017). Available at SSRN. In case of questions, please contact Iván Alfaro.