00
Days
00
Hrs
00
Min
00
Sec
Submit Your Paper

Trade Policy Shocks and the Indian Equity Market: An Empirical Analysis of U.S. Tariff Changes and Sectoral Stock Returns

Authors

Prof. Avinash Holihosur

JSS, SMI UG & PG Studies, Dharwad (India)

Dr. Melita Simoes

SMSR, KLE Technological University, Hubli (India)

Prof. Laxman R Yaligar

JSS, SMI UG & PG Studies, Dharwad (India)

Mrs. Hema Holihosur

Shakti Institute of Financial Markets, Dharwad (India)

Dr. A M Kadakol

Karnatak University, Dharwad (India)

Article Information

DOI: 10.51583/IJLTEMAS.2026.150700175

Subject Category: Education

Volume/Issue: 15/7 | Page No: 2390-2396

Publication Timeline

Submitted: 2026-08-10

Accepted: 2026-08-15

Published: 2026-08-27

Abstract

This study aims to understand how major US tariff-policy announcements have influenced the prices of Indian equities. The study further explores conditional volatility and financial transmission channels from January 2018 to June 2026. This study employs a combined event-study framework. Generalized Autoregressive Conditional Heteroskedasticity (GARCH) volatility modelling along with a five-variable Structural Vector Autoregression (SVAR) was also used. The study was carried out for a 251 trading day estimation window and three event windows around six policy announcements. The reported results show a statistically significant negative response of the NIFTY 50, with a cumulative average abnormal return (CAAR) of −1.42% over the [−1,+1] window. Sectoral responses are heterogeneous: NIFTY Metal (−3.65%), and NIFTY IT (−2.84%) show larger negative responses, whereas NIFTY FMCG (−0.22%) is statistically insignificant. GARCH estimates indicate positive event-related variance shifts for NIFTY 50, IT and Metal, but not FMCG. Under the specified Cholesky identification, the 10-day forecast-error variance of NIFTY IT is associated with FPI-flow and USD/INR shocks accounting for 24.3% and 18.7%, respectively, while TPU shocks account for 29.1% of NIFTY Metal variance. The results showcase heterogeneous short-run responses across the selected sectors while the transmission estimates highlight conditionality on the specified identification structure. These findings indicate that U.S. tariff announcements are associated with heterogeneous short-run spillovers into Indian equities, with financial channels complementing direct trade exposure.

Keywords

Tariff policy, Trade policy, Indian equity market, GARCH, FPI flows.

Downloads

References

1. Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly, Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024 [Google Scholar] [Crossref]

2. Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31(3), 307–327. https://doi.org/10.1016/0304-4076(86)90063-1 [Google Scholar] [Crossref]

3. Caldara, D., Iacoviello, M., Molligo, P., Prestipino, A., & Raffo, A. (2020). The economic effects of trade policy uncertainty. Journal of Monetary Economics, 109, 38–59. https://doi.org/10.1016/j.jmoneco.2019.11.002 [Google Scholar] [Crossref]

4. Engle, R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica, 50(4), 987–1007. https://doi.org/10.2307/1912773 [Google Scholar] [Crossref]

5. Faniband, M., & Singh, S. (2026). Volatility spillover effects from US and China trade policy uncertainty to the stock market: Evidence from an emerging economy. Cogent Economics & Finance, 14(1), Article 2639204. https://doi.org/10.1080/23322039.2026.2639204 [Google Scholar] [Crossref]

6. Kumar, R., & Moussa, F. (2025). The impact of US reciprocal tariff announcements on global stock markets: An event study analysis. International Journal of Accounting, Business and Finance, 4(1), 26–37. https://doi.org/10.55429/ijabf.v4i1.205 [Google Scholar] [Crossref]

7. MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35(1), 13–39. [Google Scholar] [Crossref]

8. Sims, C. A. (1980). Macroeconomics and reality. Econometrica, 48(1), 1–48. https://doi.org/10.2307/1912017 [Google Scholar] [Crossref]

9. Yu, D., Tang, J., & Zhou, M. (2026). Trade policy uncertainty and stock returns: A tale of two periods. International Review of Financial Analysis, 109, 104789. https://doi.org/10.1016/j.irfa.2025.104789 [Google Scholar] [Crossref]

Metrics

Views & Downloads

Similar Articles

© 2026 IJLTEMAS · RSIS International. All rights reserved. ISSN 2278-2540.