Do Announcements of WTO Dispute Resolution Cases Matter? Evidence from the Rare Earth Elements Market

Juliane Proelss (), Denis Schweizer () and Volker Seiler
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Juliane Proelss: Concordia University
Denis Schweizer: Concordia University

No 103, Working Papers CIE from Paderborn University, CIE Center for International Economics

Abstract: Rare earth elements (REEs) have gained increasing attention recently for several key reasons: 1) they are vital to many strategic industries, 2) they are relatively scarce, 3) they frequently exhibit high price fluctuations, 4) China holds a quasi-monopoly on their mining, and 5) China’s REE policy, which was overly restrictive and led to a formal complaint from the U.S., Japan, and the EU at the World Trade Organization (WTO) in 2012. This paper investigates whether the announcement of a WTO dispute resolution case has the power to fundamentally change market dynamics. We find empirical support for this notion, because REE prices exhibit a structural break around the announcement of the WTO dispute, and show lower variance ratios for all tested REEs afterward. This indicates a tendency toward efficiency, although REE prices still do not follow a random walk. Similarly, we find that the stock price informativeness of companies in the REE industry increases after the announcement, reflecting more firm-specific than marketwide information and less governmental influence. Finally, we show that the model uncertainty for option pricing models decreases, which we measure by the lower pricing differences among them.

Keywords: Market Efficiency; Rare Earth Elements; Stock Price Informativeness; Structural Break Tests; Variance Ratio Tests; World Trade Organization (WTO) (search for similar items in EconPapers)
JEL-codes: C22 C58 F13 G14 G18 G28 Q02 Q38 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2017-04
New Economics Papers: this item is included in nep-ene and nep-int
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Related works:
Journal Article: Do announcements of WTO dispute resolution cases matter? Evidence from the rare earth elements market (2018)
Working Paper: Do announcements of WTO dispute resolution cases matter? Evidence from the rare earth elements market (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pdn:ciepap:103

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