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


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


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
Authors:Proelss, Juliane and Schweizer, Denis and Seiler, Volker
Journal or Publication:Energy Economics
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:10 May 2020 00:00


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