Trade Liberalization and Stock Prices: Evidence from the Canada-United States Free Trade Agreement

Abstract

Two primary questions will be addressed in this paper. The first is whether invetors' expectations of the conseuences of the FTA were consistent with the price version of the H-O hypothesis. In other words, did relative factor prices play a role in determining investors' perceptions of comparative advantage? The second questions is whether firms operating in industries where the average plant scale is small relative to the corresponding U.S. industries were expected to experience losses as a result of the FTA. This may be interpreted as a sign that the industry was expected to rationalize.