Trade Policy Uncertainty and Stock Returns

38 Pages Posted: 14 Mar 2019 Last revised: 8 May 2020

Date Written: July 29, 2019

Abstract

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, stock returns, risk premium

JEL Classification: F10, F13, G12

Suggested Citation

Bianconi, Marcelo and Esposito, Federico and Sammon, Marco, Trade Policy Uncertainty and Stock Returns (July 29, 2019). Available at SSRN: https://ssrn.com/abstract=3340700 or http://dx.doi.org/10.2139/ssrn.3340700

Marcelo Bianconi

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-2677 (Phone)

HOME PAGE: http://www.tufts.edu/~mbiancon

Federico Esposito (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States

Marco Sammon

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

HOME PAGE: http://marcosammon.com/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
197
Abstract Views
1,146
rank
165,235
PlumX Metrics