Not So Empty Threats: Stock Market Responses to the Trump Election and Protectionist Rhetoric^*

ABSTRACT This paper examines how perceived geopolitical risks affect multinational firms using evidence from Donald Trump's surprise 2016 election, which was marked by hostile campaign rhetoric aimed at Mexico. The study combines an analysis of the stock market's reaction to Trump's election with measures of country‐specific international exposure to assess whether investors expected firms exposed to Mexico to perform significantly worse under the Trump administration. The results show that an increase in a firm's share of affiliates in Mexico is associated with a 13 times larger drop in abnormal returns compared to similar modifications in exposure to other foreign countries.