Using Equity Market Reactions to Infer Exposure to Trade Liberalization

84 Pages Posted: 19 Aug 2020

See all articles by Andrew Greenland

Andrew Greenland

Elon University - Department of Economics

Mihai Ion

University of Arizona - Department of Finance

John Lopresti

College of William and Mary - Department of Economics

Peter Schott

Yale University

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2020

Abstract

We outline a method for using asset prices to identify firm exposure to changes in policy. We highlight the benefits of this approach for studying trade agreements and apply it to two US trade liberalizations, with China and Canada. We find that abnormal equity returns during key events associated with these liberalizations are correlated with standard measures of import competition, vary across firms even within industries, predict subsequent firm outcomes, and provide a more complete view of distributional implications. In both cases, predicted relative increases in operating profit among the very largest firms dwarf the relative losses of smaller firms.

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

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

Suggested Citation

Greenland, Andrew and Ion, Mihai and Lopresti, John and Schott, Peter, Using Equity Market Reactions to Infer Exposure to Trade Liberalization (July 1, 2020). Available at SSRN: https://ssrn.com/abstract=3640803 or http://dx.doi.org/10.2139/ssrn.3640803

Andrew Greenland

Elon University - Department of Economics ( email )

Elon, NC 27244
United States

Mihai Ion (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
5206210737 (Phone)

John Lopresti

College of William and Mary - Department of Economics ( email )

100 Ukrop Way
Morton Hall
Williamsburg, VA 23185
United States

HOME PAGE: http://wmpeople.wm.edu/site/page/jwlopresti/home

Peter Schott

Yale University ( email )

New Haven, CT 06520
United States

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