Trade wars and asset prices

Guillermo Carlomagno and Elías Albagli

Journal of International Money and Finance, 2022, vol. 124, issue C

Abstract: We study the effects of the trade war between the US and China since 2018 on international asset markets, including bonds, stocks, and exchange rates for a sample of 36 developed and emerging economies. Our main methodology relies on event studies, based on a daily indicator of trade-war news. We find that the typical negative news significantly and persistently compresses 10-y yields in the US and other developed economies, leading to cumulative effects close to −67 bp and −32 bp over the sample period, respectively. These episodes also significantly reduce stock markets in the US and other developed economies, with cumulative effects close to 23 and 14% for developed and emerging economies, respectively. For emerging countries, we also find significant currency depreciations against the USD. These results are confirmed with an alternative identification based on time-varying volatility. Given the relatively larger impacts on long-term yields, as well as the differential effects across developed and emerging markets, we conclude that the dominant channel behind the effects are increases in global risk aversion, as opposed to worsening perspectives about global growth prospects.

Keywords: Trade war; Asset markets; Event studies; Conditional heteroskedasticity (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560622000341
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:124:y:2022:i:c:s0261560622000341

DOI: 10.1016/j.jimonfin.2022.102631

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().