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Do announcements of WTO dispute resolution cases matter? Evidence from the rare earth elements market

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.
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https://hal-normandie-univ.archives-ouvertes.fr/hal-02983217
Contributor : Volker Seiler <>
Submitted on : Thursday, October 29, 2020 - 2:51:21 PM
Last modification on : Friday, October 30, 2020 - 3:27:16 AM

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Juliane Proelss, Denis Schweizer, Volker Seiler. Do announcements of WTO dispute resolution cases matter? Evidence from the rare earth elements market. Energy Economics, Elsevier, 2018, 73, pp.1-23. ⟨10.1016/j.eneco.2018.05.004⟩. ⟨hal-02983217⟩

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