Modelling the Impact of Tariff Policy Shocks on Stock Market Performance: A Multivariate Econometric Approach

<p>This paper presents a quantitative analysis of how tariff policy shocks influence financial markets, with a particular focus on stock market responses. Using a multivariate Ordinary Least Squares (OLS) regression model, we examine the impact of variables such as tariff magnitude, country scope, macroeconomic indicators, and market volatility (VIX) on short-term equity returns. Motivated by the recent 2025 market collapse following President Trump's tariff announcement, we simulate scenarios of varying economic intensity to forecast investor reactions. Model validation demonstrates strong predictive accuracy and diagnostic reliability. The results provide actionable insights for policymakers, investors, and risk managers, offering a framework for forecasting and mitigating the financial repercussions of trade protectionism. By incorporating sensitivity analyses, strategic forecasting, and policy recommendations, this research contributes to the development of evidence-based economic governance in an increasingly volatile global economy.</p>