Trade Policy Uncertainty and Stock Returns
Federico Esposito (),
Marcelo Bianconi and
MPRA Paper from University Library of Munich, Germany
We examine how trade policy uncertainty is reflected in stock returns. Our identification strategy exploits quasi-experimental variation in exposure to trade policy uncertainty arising from Congressional votes to revoke China's preferential tariff treatment between 1990 and 2001. More exposed industries commanded a risk premium of 6% per year. The risk premium was larger in sectors less protected from globalization, and more reliant on inputs from China. More exposed industries also had a larger drop in stock prices when the uncertainty began, and more volatile returns around key policy dates. Moreover, the effects of policy uncertainty on expected cash-flows, investors' forecast errors, and import competition from China cannot explain our results.
Keywords: Trade policy; uncertainty; risk premium; China shock (search for similar items in EconPapers)
JEL-codes: F1 F60 G10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-gen, nep-int and nep-ore
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Working Paper: Trade Policy Uncertainty and Stock Returns (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:99874
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