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Firm-level reactions to trade policy risk: Evidence from the S&P 500

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  • Cocozza, Rosa
  • Gallo, Serena

Abstract

This paper investigates the short-term equity market response to the April 2025 “Liberation Day” tariff announcement and the subsequent August 2025 enforcement. Using event-study methods and panel regressions on S&P500 firms, we document sharp and heterogeneous losses at announcement, most severe in trade-exposed sectors and among smaller firms, followed by partial recovery at implementation, when realized tariffs were less stringent than initially signalled. Placebo tests corroborate the causal interpretation, while impulse-response analysis highlights asymmetric effects across financial sub-sectors. Overall, the evidence supports semi-strong market efficiency and underscores the role of firm characteristics in shaping exposure to trade-policy risk. The findings provide insight into how markets price trade policy risk and offer implications for policymakers.

Suggested Citation

  • Cocozza, Rosa & Gallo, Serena, 2025. "Firm-level reactions to trade policy risk: Evidence from the S&P 500," Economics Letters, Elsevier, vol. 257(C).
    • Handle: RePEc:eee:ecolet:v:257:y:2025:i:c:s0165176525004847
    DOI: 10.1016/j.econlet.2025.112647
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    References listed on IDEAS

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    1. Caldara, Dario & Iacoviello, Matteo & Molligo, Patrick & Prestipino, Andrea & Raffo, Andrea, 2020. "The economic effects of trade policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 38-59.
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    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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