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Do Announcements of WTO Dispute Resolution Cases Matter? Evidence from the Rare Earth Elements Market

Title:

Do Announcements of WTO Dispute Resolution Cases Matter? Evidence from the Rare Earth Elements Market

Proelss, Juliane ORCID: https://orcid.org/0000-0002-9467-8220, Schweizer, Denis ORCID: https://orcid.org/0000-0001-9115-1178 and Seiler, Volker (2018) Do Announcements of WTO Dispute Resolution Cases Matter? Evidence from the Rare Earth Elements Market. Energy Economics . ISSN 01409883 (In Press)

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Official URL: http://dx.doi.org/10.1016/j.eneco.2018.05.004

Abstract

Rare earth elements (REEs) have gained increasing attention recently for several key reasons: 1) they are vital to many strategic industries, 2) they are relatively scarce, 3) they frequently exhibit high price fluctuations, 4) China holds a quasi-monopoly on their mining, and 5) China’s REE policy, which was overly restrictive and led to a formal complaint from the U.S., Japan, and the EU at the World Trade Organization (WTO) in 2012. This paper investigates whether the announcement of a WTO dispute resolution case has the power to fundamentally change market dynamics. We find empirical support for this notion because REE prices exhibit a structural break around the announcement of the WTO dispute, and show lower variance ratios for all tested REEs afterward. This indicates a tendency toward efficiency, although REE prices still do not follow a random walk. Similarly, we find that stock price informativeness of companies in the REE industry increases after the announcement, reflecting more firm-specific than marketwide information and less governmental influence. Finally, we show that model uncertainty for option pricing models decreases, which we measure by the lower pricing differences among them.

Divisions:Concordia University > John Molson School of Business > Finance
Item Type:Article
Refereed:Yes
Authors:Proelss, Juliane and Schweizer, Denis and Seiler, Volker
Journal or Publication:Energy Economics
Date:2018
Digital Object Identifier (DOI):10.1016/j.eneco.2018.05.004
Keywords:Market Efficiency; Rare Earth Elements; Stock Price Informativeness; Structural Break Test; Variance Ratio Test; World Trade Organization (WTO)
ID Code:983856
Deposited By: ALINE SOREL
Deposited On:11 May 2018 13:03
Last Modified:11 May 2018 13:03

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