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Trade Policy Uncertainty and Stock Returns

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  • Marcelo Bianconi
  • Federico Esposito
  • Marco Sammon

Abstract

This paper documents new stylized facts on the effects of trade policy uncertainty on stock returns. We exploit quasi-exogenous variation in exposure to policy uncertainty arising from annual votes by US Congress to revoke China's MFN tariff rates between 1990 and 2000. Before the uncertainty was resolved by granting China permanent MFN rates, US manufacturing industries highly exposed to trade policy uncertainty had stock returns 10.4% higher per year than less exposed sectors. We argue that this difference in average returns is a risk premium for exposure to trade policy uncertainty. Indirect exposure to trade policy uncertainty through Input-Output linkages also commands a substantial risk premium.

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  • Marcelo Bianconi & Federico Esposito & Marco Sammon, 2019. "Trade Policy Uncertainty and Stock Returns," Discussion Papers Series, Department of Economics, Tufts University 0830, Department of Economics, Tufts University.
  • Handle: RePEc:tuf:tuftec:0830
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    Cited by:

    1. Esposito, Federico, 2019. "Demand Risk and Diversification through Trade," MPRA Paper 99875, University Library of Munich, Germany.
    2. Esposito, Federico, 2020. "Demand Risk and Diversification through International Trade," MPRA Paper 100865, University Library of Munich, Germany.
    3. Huang, Yi & Lin, Chen & Liu, Sibo & Tang, Heiwai, 2019. "Trade Networks and Firm Value: Evidence from the US-China Trade War," CEPR Discussion Papers 14173, C.E.P.R. Discussion Papers.
    4. Mary Amiti & Sang Hoon Kong & David Weinstein, 2020. "The Effect of the U.S.-China Trade War on U.S. Investment," NBER Working Papers 27114, National Bureau of Economic Research, Inc.
    5. Sascha Tobias Wengerek, 2020. "Share price reactions to tariff imposition announcements in the Trump era - An event study of the trade conflict," Working Papers Dissertations 59, Paderborn University, Faculty of Business Administration and Economics.
    6. Andrew N. Greenland & Mihai Ion & John W. Lopresti & Peter K. Schott, 2020. "Using Equity Market Reactions to Infer Exposure to Trade Liberalization," NBER Working Papers 27510, National Bureau of Economic Research, Inc.

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    JEL classification:

    • F1 - International Economics - - Trade
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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