Firm-Level Reactions to Trade Policy Risk: Evidence from the S&P 500

This paper investigates the short-term equity market response to the April 2025 “Liberation Day” tariff announcement and the subsequent August 2025 enforcement. Using event-study methods and panel regressions on S&P500 f irms, we document sharp and heterogeneous losses at announcement, most severe in trade-exposed sectors and among smaller firms, followed by partial recovery at implementation, when realized tariffs were less stringent than initially signalled. Placebo tests corroborate the causal interpretation, while impulse-response analysis highlights asymmetric effects across financial subsectors. Overall, the evidence supports semi-strong market efficiency and underscores the role of firm characteristics in shaping exposure to tradepolicy risk. The findings provide insight into how markets price trade policy risk and offer implications for policymakers.