Using Equity Market Reactions to Infer Exposure to Trade Liberalization

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.

Keywords: International Trade, Trade Policy, PNTR, CUSFTA, NAFTA, Event Studies

JEL Classification: F13, F14, G14, G12, E00

Suggested Citation: Suggested Citation

Greenland, Andrew and Ion, Mihai and Lopresti, John and Schott, Peter, Using Equity Market Reactions to Infer Exposure to Trade Liberalization (June 3, 2022). Available at SSRN: https://ssrn.com/abstract=3640803 or http://dx.doi.org/10.2139/ssrn.3640803