Using Equity Market Reactions to Infer Exposure to Trade Liberalization

Andrew N. Greenland, Mihai Ion, John W. Lopresti, Peter K. Schott

NBER Working Paper No. 27510
Issued in July 2020
NBER Program(s):Asset Pricing, International Trade and Investment

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 largest firms dwarf the relative losses of smaller firms.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w27510