Financial Depth and Global Contagion: Evidence from the 2025 Reciprocal Tariff Shock

Financial Depth and Global Contagion: Evidence from the 2025 Reciprocal Tariff Shock | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Financial Depth and Global Contagion: Evidence from the 2025 Reciprocal Tariff Shock ATM Adnan, Md Tapan Mahmud This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-9451787/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract Conceptualizing the 2025 U.S. reciprocal tariff declaration as an exogenous systemic shock, this study investigates the transmission of trade policy uncertainty across 78 international capital markets. Utilizing a standardized event-study and BCa bootstrapping hierarchical regression, we identify a synchronized global valuation collapse, yielding a Cumulative Average Abnormal Return (CAAR) of − 8.18% over an 11-day window. Cross-sectional analysis validates the "Transmission Conduit Theory," demonstrating that high financial depth functioned as a structural liability by facilitating contagion rather than acting as a shock absorber. Conversely, the "Macro-Shield" effect of positive trade balances emerged as the primary Moderator of losses, establishing a robust equity valuation floor. While institutional efficiency reduced information asymmetry, its impact was secondary to the velocity of capital integration a phenomenon termed the "Institutional Mirage." These results necessitate a recalibration of safe-haven strategies, positioning advanced, highly integrated markets as high-beta transmission channels for trade policy risk rather than defensive harbors. JEL Code: F36, G11, G14, G15 Trump Tariff Policy Trade Policy Uncertainty Financial Depth Global Contagion Event Study Macro-Shield BCa Bootstrapping Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-9451787","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":636909770,"identity":"5a61022a-8512-4011-b757-7aba1f12b0d5","order_by":0,"name":"ATM Adnan","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA8ElEQVRIiWNgGAWjYFCCBBDBDMSMDQwfgBQbOylaGGeAtDATrwVI8iDYuAF/e+7BzwUM1okN7IebP9v82ibPx8zA+OFjDm4tEmfeJUvPYEhPbOBJbJPO7btt2MbMwCw5cxsea27kGEjzMBxObGBIbGPO7bnNCNTCxsyLR4v8jRzj32At/A+bP1v23LYnqMXgRo4ZxBaJxAZphh+3EwlqMTzzxsyaxyDduE3iYZtkb8Pt5DZmxma8fpE7nmN8m6fCWrafP/3xhx9/btvOb28++OEjPu9DnAeMQRDN2AYmGwipRwZ/SFE8CkbBKBgFIwUAAA99S6v1SaXRAAAAAElFTkSuQmCC","orcid":"","institution":"BGMEA University of Fashion and Technology","correspondingAuthor":true,"prefix":"","firstName":"ATM","middleName":"","lastName":"Adnan","suffix":""},{"id":636909771,"identity":"57a87ef8-c214-4016-95df-fb4d247c1e38","order_by":1,"name":"Md Tapan Mahmud","email":"","orcid":"","institution":"Bangladesh University of Professionals","correspondingAuthor":false,"prefix":"","firstName":"Md","middleName":"Tapan","lastName":"Mahmud","suffix":""}],"badges":[],"createdAt":"2026-04-17 17:40:33","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-9451787/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-9451787/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":109208423,"identity":"f2da5069-6784-4485-a08d-3ff7128f164a","added_by":"auto","created_at":"2026-05-13 15:24:47","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":692880,"visible":true,"origin":"","legend":"","description":"","filename":"NCAOriginalDraft150A.pdf","url":"https://assets-eu.researchsquare.com/files/rs-9451787/v1_covered_2109ab20-a965-472a-94a4-4db9142fa4ac.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Financial Depth and Global Contagion: Evidence from the 2025 Reciprocal Tariff Shock","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Trump Tariff Policy, Trade Policy Uncertainty, Financial Depth, Global Contagion, Event Study, Macro-Shield, BCa Bootstrapping","lastPublishedDoi":"10.21203/rs.3.rs-9451787/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-9451787/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eConceptualizing the 2025 U.S. reciprocal tariff declaration as an exogenous systemic shock, this study investigates the transmission of trade policy uncertainty across 78 international capital markets. 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