ASYMMETRIC EFFECTS OF TRADE POLICY UNCERTAINTY ON THE STOCK MARKET: EVIDENCE FROM THE MARKOV REGIME SWITCHING MODEL

Ayşegul Şahin
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Ayşegul Şahin: ANADOLU UNIVERSITY

Ekonomi Maliye Isletme Dergisi, 2025, vol. 8, issue 1, 78-90

Abstract: This study examines the S&P 500 index using the Markov Regime Switching model to analyze the effects of trade policy uncertainty on financial markets. Trade policy uncertainty can increase the volatility of financial markets by affecting investor confidence and asset prices through various transmission channels. The study found that the effect of trade policy uncertainty on the stock market index varies depending on the market regime. The findings show that trade policy uncertainty has a negative and significant impact in the stock market uptrend regime (Regime 0). Decreased trade policy uncertainty allows investors to invest more by reducing risk perception. In Regime 1, it is shown that the increases in trade policy uncertainty prevent new stock investments even if there are no serious exits from the stock market. The study's findings reveal that measures to reduce uncertainty in trade policies are critical for financial markets. Policy recommendations such as transparent trade policies, risk management strategies, and investors' portfolio diversification mechanisms are presented in this direction.

Keywords: Trade policy uncertainty; S&P500; Markov Regime Switching Model (search for similar items in EconPapers)
JEL-codes: D80 F13 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:gnx:emid43:2025-8-1-1643258

DOI: 10.46737/emid.1643258

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