Assessing Industrial Policy Using Financial Markets

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Historical Stock Data

𝐸 𝑟𝑖 = 𝛼𝑖𝑀 + βiM ∗ rM + ε𝑖

Historical Stock Data Mathematical Model

𝐸 𝑟𝑖 = 𝛼𝑖𝑀 + βiM ∗ rM + ε𝑖

𝐸 𝑟𝑖 = 𝛼𝑖𝑀 + βiM ∗ rM + ε𝑖

Expected return of stock i on given day

𝐸 𝑟𝑖 = 𝛼𝑖𝑀 + βiM ∗ rM + ε𝑖

Intercept of trend line, based on historical data

𝐸 𝑟𝑖 = 𝛼𝑖𝑀 + βiM ∗ rM + ε𝑖

Correlation of stock to overall market activity

𝐸 𝑟𝑖 = 𝛼𝑖𝑀 + βiM ∗ rM + ε𝑖

Return on the overall market on a given day (observable)

𝐸 𝑟𝑖 = 𝛼𝑖𝑀 + βiM ∗ rM + ε𝑖

Variable to account for statistical error

• 3 different presidential administrations

• 3 different policies

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Stock AMAT

A[r] 6%

T-Test 2.803699

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Stock AMAT IDTI EXAR CY LLTC SIGM PLAB MXIM CRUS XLNX KOPN MRVC CREE

A[r] 1% -2% -5% 1% -1% 2% -1% -9% -4% 1% -4% 28% 3%

T-Test 0.295514 -0.47049 -1.35958 0.278072 -0.40118 0.367313 -0.36911 -2.69025 -0.9872 0.268074 -0.99069 5.312803 0.482514

Stock MCHP DSPG TSEM LPTH AMCC EMKR OSIS POWI RMBS TSM AMKR AXTI

A[r] -6% -2% 0% 6% 1% 3% 27% -18% -5% 4% 8% -2%

T-Test -1.51896 -0.54477 -0.05397 1.025257 0.244519 0.532966 5.635623 -3.62756 -0.88472 0.965263 1.352127 -0.37095

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Stock AMAT IDTI EXAR CY LLTC SIGM PLAB MXIM CRUS XLNX KOPN MRVC CREE MCHP DSPG TSEM LPTH

A[r] 0% -1% 1% -1% -2% 4% -2% -1% -1% -1% 14% -1% 2% -1% -1% -3% -3%

T-Test 0.032692 -0.17314 0.349254 -0.25887 -0.73778 0.747464 -0.45893 -0.35556 -0.20679 -0.41173 3.136766 -0.27273 0.367635 -0.27162 -0.3785 -0.68594 -0.45095

Stock EMKR OSIS POWI RMBS TSM AMKR AXTI FCS FNSR NVDA QUIK CCMP ISIL MRVL PXLW SLAB AMCC

A[r] -2% -1% -1% -1% 0% -3% 0% 0% 0% -2% 2% 0% -1% 1% 0% -1% -1%

T-Test -0.32711 -0.18123 -0.29511 -0.13997 -0.07602 -0.72255 0.075322 -0.05436 0.014093 -0.43321 0.31087 0.035145 -0.41465 0.306934 -0.00676 -0.41236 -0.31895

Date Stock T-Test

2/2/2009 6701 2.129433

1/22/2009 6758 2.596411

2/2/2009 6723 4.116129

1/22/2009 7735 2.661969

2/5/2009 6981 3.463484

1/30/2009 6981 2.107546

1/27/2009 6981 2.08564

2/10/2009 6963 2.309086

2/5/2009 6963 3.698643

1/30/2009 6963 2.090748

2/6/2009 6501 2.068623

2/2/2009 6501 9.40179

1/30/2009 6501 2.123685

2/6/2009 6502 2.829403

2/2/2009 6502 4.612963

1/30/2009 6502 7.40011

1/26/2009 6502 1.948835

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