Korea Trade Review (무역학회지)

Korea Trade Research Association (한국무역학회)
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Are the stock markets really responding to news on the FTA?: Event Study on Korea-US FTA

FTA 뉴스에 대한 주식시장의 반응 분석: 한-미 FTA 사건연구를 중심으로

  • Received : 2020.07.31
  • Accepted : 2020.08.28
  • Published : 2020.08.31
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Abstract

Although there is a lot of literature on the effectiveness of regional trade agreements(RTAs), it is usually analyzed only using trade-related theories and data. However, this paper has a differentiation in that we examine the linkage between international trade and financial markets through the stock markets reactions when the trade agreements related news arrived. Specifically, using an event study, we look into the Korea-US free trade agreement(KORUS FTA) which is the most commercially significant FTA in almost two decades for both the countries. Korean stock market generally responded more sensitively to FTA news than the US stock market, especially in 'Auto & Parts', 'Electrical Equipment' and 'Chemicals' industries. And the investors' perception toward the effect of KORUS FTA on Korean industries changed from negative to positive as negotiations proceed. Korea has a comparative advantage in the production of labor-intensive goods relative to US, but the economies of scale hypothesis does not hold.

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