The Anticipated Sectoral Adjustment to the Canada - United States Free Trade Agreement: An Event Study Analysis

In this paper, a stock market event study is employed to investigate investors' expectations about the consequences of the Canada-U. S. Free Trade Agreement for manufacturing industries in Canada. The author finds that industry-level abnormal returns corresponding to only one event, reaching the agreement in October 1987, are jointly significant and consistent with prior hypotheses about the impact of the agreement. Although only a few of these abnormal returns are statistically significant, all of them have the anticipated signs and some are quite large, suggesting substantial profits and losses during the adjustment to free trade.