Description:
This study examines whether world trade uncertainty affects future stock returns. The greater the past returns of a company are positively related to world trade uncertainty, the higher would be its future returns. Buying firms whose past returns are more positively related to world trade uncertainty and shorting firms whose past returns are less positively related to world trade uncertainty generate a 1.68% monthly return. The impact of world trade uncertainty on future returns is attributable to systemic risk instead of behavioral bias. The findings are valuable for investors in countries highly engaged in international trade