This paper employs wavelet quantile regression on daily data for rare earth elements (REE) to investigate the non-linear and horizon-specific effects of global and US-specific indicators of trade policy uncertainty (TPU) on herding behavior in the REE market during the US–China trade war. Spanning the period from January 2015 to April 2025, our sample covers the pre-Trump stability phase and subsequent tariff escalations phases. Our analysis reveals that REE investors generally exhibit anti-herding behavior which is driven by the herding patterns of the trade war Phase I, in contrast to heightened herding observed during Trump’s early presidency. Among the horizon-specific herding effects associated with TPU indicators, US-based TPU exerts the most persistent and extensive non-linear influence on herding in the REE market, especially across short- and medium-term horizons. Importantly, the full-sample herding dynamics are largely shaped by market responses during Phase II of the US-China trade war. These findings highlight the dominant role of the US-origin TPU in shaping horizon-specific correlated trading in REE market. The findings carry important implications for investors, portfolio managers, and policymakers, suggesting the necessity to incorporate TPU dynamics into both investment strategies and regulatory frameworks to enhance resilience and responsiveness under heightened trade policy uncertainty.
Rubbaniy et al. (Wed,) studied this question.
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