THE EFFECT OF U.S. TRADE DEFICIT ANNOUNCEMENTS ON THE STOCK PRICES OF U.S. AND JAPANESE AUTOMAKERS

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AbstractThe existing literature on the trade news effect on asset prices generally looks at exchange rates and stock market indexes. We focus on individual stocks: the U.S. and Japanese “Big Three” automobile stocks. We examine Japanese automobile American Depositary Receipts (ADRs), not the stocks per se, to avoid the time lag problem. First, we find deficit news shocks, especially the positive shocks, have a negative effect on the Japanese automobile ADRs. Second, we find only weak evidence that the news effect is different under different economic conditions. Third, trade news is found to be a competitive shock to the automakers in the sense of Karolyi and Stulz (1996). Last, statistically generated U.S.–Japan bilateral trade deficit news and bilateral auto trade deficit news have no effect on the automobile stock in general.