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U.S. tariffs and stock prices

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  • Yilmazkuday, Hakan

Abstract

This study investigates the effects of U.S. tariffs and concurrent trade policy uncertainty on major U.S. stock indices. Employing a structural vector autoregression model with monthly data, we analyze the responses of the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average while controlling for macroeconomic factors of oil prices, economic activity, inflation, exchange rates, and interest rates. The empirical results show that one standard deviation shocks to tariffs, representing concrete policy actions, cause significant long-run reductions in stock prices, ranging from 7.33 % to 10.13 % across indices after two years. One standard deviation shocks to trade policy uncertainty also cause significant long-run reductions, ranging from 6.57 % to 10.05 % across indices after two years. The corresponding variance decomposition analyses further show that shocks to tariffs and trade policy uncertainty collectively explain up to 7.9 %, 8.2 %, and 9.9 % of the forecast error variance for the S&P 500, Nasdaq, and Dow Jones indices, respectively.

Suggested Citation

  • Yilmazkuday, Hakan, 2025. "U.S. tariffs and stock prices," Finance Research Letters, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finlet:v:83:y:2025:i:c:s1544612325009663
    DOI: 10.1016/j.frl.2025.107708
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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