ABSTRACT
Trade conflict and restriction events and trade deficit announcements are the two types of major trade news which have caused a great deal of public attention. This chapter discusses how trade news may affect trade related firms’ stock prices. Three empirical models are employed to test the trade news effect on US import-competing and Korean and Taiwanese export-oriented firms’ stock prices. For trade restriction and trade conflict events, the authors invoke: the capital market event study method—the market model; and a modified version of the capital market event study—the seemingly unrelated regression (SUR) model. In SUR model, the return generating process is conditioned on the occurrence and nonoccurrence of an event which is accomplished by appending a zero-one dummy variable to the market model equation. Since the trade deficit is regularly announced, if using the market model, the estimation period of later announcements will overlap with the previous announcements.
