Asymmetric effects of tariff rate volatility on the stock markets development: a multi-country analysis

Purpose This study examines the impact of tariff rate volatility on stock market development in 19 developed and emerging economies from 1993 to 2022. It aims to provide new empirical evidence on how trade policy uncertainty influences financial market growth and stability in different economic contexts. Design/methodology/approach Using both linear and nonlinear Autoregressive Distributed Lag (ARDL) models, the study examines short- and long-run effects of tariff rate volatility on stock market development while controlling for economic growth and real interest rates. The nonlinear model decomposes tariff volatility into positive and negative changes to capture potential asymmetric effects. Country-specific estimations ensure robustness and account for institutional and structural differences. Findings Results reveal that tariff rate volatility significantly and asymmetrically affects stock market development in most countries. Increases in tariff volatility have stronger negative effects than decreases, particularly in emerging economies. Evidence of both short-run and long-run asymmetry suggests that unstable trade policies erode investor confidence, liquidity, and long-term market growth. Research limitations/implications Data availability. Practical implications Findings highlight the importance of stable trade policies, institutional strengthening, and financial market deepening to mitigate the adverse effects of tariff volatility. Originality/value This study is among the first to conduct a comprehensive multi-country analysis of the asymmetric impacts of tariff rate volatility on stock market development using nonlinear ARDL modeling. It contributes to the literature by linking trade policy uncertainty with financial market performance through both linear and nonlinear dynamics.