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Using Equity Market Reactions to Infer Exposure to Trade Liberalization

Author

Listed:
  • Greenland, Anew
  • Ion, Mihai
  • Lopresti, John
  • Schott, Peter

Abstract

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.

Suggested Citation

  • Greenland, Anew & Ion, Mihai & Lopresti, John & Schott, Peter, 2022. "Using Equity Market Reactions to Infer Exposure to Trade Liberalization," CEPR Discussion Papers 17387, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17387
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    2. Yong Wang & Changyang Liu & Gaoyi Wang, 2020. "Geopolitical Risk Revealed in International Investment and World Trade," Risk Management, Palgrave Macmillan, vol. 22(2), pages 133-154, June.
    3. Bianconi, Marcelo & Esposito, Federico & Sammon, Marco, 2021. "Trade policy uncertainty and stock returns," Journal of International Money and Finance, Elsevier, vol. 119(C).
    4. Alan Feng & Haishi Li & Yulin Wang, 2023. "We Are All in the Same Boat: Cross-Border Spillovers of Climate Shocks through International Trade and Supply Chain," CESifo Working Paper Series 10402, CESifo.
    5. Justin R. Pierce & Peter K. Schott & Cristina Tello-Trillo, 2022. "Trade Liberalization and Labor-Market Outcomes: Evidence from US Matched Employer-Employee Data," Working Papers 22-42, Center for Economic Studies, U.S. Census Bureau.
    6. Laura Alfaro & Anusha Chari & Andrew N. Greenland & Peter K. Schott, 2020. "Aggregate and Firm-Level Stock Returns During Pandemics, in Real Time," NBER Working Papers 26950, National Bureau of Economic Research, Inc.
    7. Grace Gu & Samreen Malik & Dario Pozzoli & Vera Rocha, 2022. "Chinese import competition, offshoring and servitization," Economic Inquiry, Western Economic Association International, vol. 60(2), pages 901-928, April.
    8. Jeroen Klomp, 2025. "Trump tariffs and the U.S. defense industry," PLOS ONE, Public Library of Science, vol. 20(1), pages 1-30, January.
    9. Haoyuan Ding & Kees G. Koedijk & Tong Qi & Yanqing Shen, 2022. "U.S.–China trade war and corporate reallocation: Evidence from Chinese listed companies," The World Economy, Wiley Blackwell, vol. 45(12), pages 3907-3932, December.
    10. Huang, Yi & Lin, Chen & Liu, Sibo & Tang, Heiwai, 2023. "Trade networks and firm value: Evidence from the U.S.-China trade war," Journal of International Economics, Elsevier, vol. 145(C).
    11. Suwanprasert, Wisarut, 2022. "The international spillover effects of US trade policy uncertainty," Economics Letters, Elsevier, vol. 212(C).
    12. Liyan Han & Lei Li & Huiyi Liao & Libo Yin, 2024. "Hedging Along the Global Value Chain: Trade War and Firm Value," CRC TR 224 Discussion Paper Series crctr224_2024_531, University of Bonn and University of Mannheim, Germany.
    13. Chen, Tao & Gao, Huasheng & Wang, Yuxi, 2021. "Tariff uncertainty and firm innovation: Evidence from the U.S.–China Permanent Normal Trade Relation," Journal of Empirical Finance, Elsevier, vol. 62(C), pages 12-27.
    14. Amiti, Mary & Kong, Sang Hoon & Weinstein, David, 2020. "The Effect of the U.S.-China Trade War on U.S. Investment," CEPR Discussion Papers 14691, C.E.P.R. Discussion Papers.
    15. Bonk, Alica Ida & Larkou, Chloe, 2025. "The macroeconomic impact of trade policy: a new identification approach," Working Paper Series 3102, European Central Bank.
    16. Tao Chen & Chen Lin & Xiang Shao, 2022. "Globalization and U.S. Corporate Tax Policies: Evidence from Import Competition," Management Science, INFORMS, vol. 68(8), pages 6145-6162, August.
    17. Ruxue Bai & Lei Li & Ying Li & Libo Yin, 2024. "Diversification or Specialization? The Responses of Multi-Product Exporters to Quota Removal," CRC TR 224 Discussion Paper Series crctr224_2024_533, University of Bonn and University of Mannheim, Germany.

    More about this item

    Keywords

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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