Using Equity Market Reactions to Infer Exposure to Trade Liberalization
94 Pages Posted: 14 Jul 2020 Last revised: 3 Mar 2023
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Using Equity Market Reactions to Infer Exposure to Trade Liberalization
Using Equity Market Reactions to Infer Exposure to Trade Liberalization
Using Equity Market Reactions to Infer Exposure to Trade Liberalization
Date Written: July 2020
Abstract
We propose a method for identifying exposure to changes in trade policy based on asset prices that has several advantages over standard measures: it encompasses all avenues of exposure, it is natively firm-level, it yields estimates for both goods and service producers, and it can be used to study reductions in difficult-to-quantify non-tariff barriers in a way that controls naturally for broader macroeconomic shocks. Applying our method to two well-studied US trade liberalizations provides new insight into service sector responses to trade liberalizations as well as dramatically different responses among small versus large firms, even within narrow industries.
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