Trade policy uncertainty and stock returns

A recent literature has documented large real effects of trade policy uncertainty (TPU) on trade, employment, and investment, but there is little evidence that investors are compensated for bearing such risk. To quantify the risk premium associated with TPU, we exploit quasi-experimental variation in exposure to TPU arising from Congressional votes revoke China’s preferential tariff treatment between 1990 2001. long-short portfolio designed isolate earns a risk-adjusted return 3.6–6.2% per year. This effect larger sectors less protected globalization, more reliant inputs China. Industries exposed also had drop stock prices when began, volatile returns around key dates. Our results not explained by expected cash-flows, investors’ forecast errors, import competition