Does the US-China trade war affect co-movements between US and Chinese stock markets?

Yujie Shi, Liming Wang and Jian Ke

Research in International Business and Finance, 2021, vol. 58, issue C

Abstract: This paper investigates the impact of the US-China Trade War on co-movements between US and Chinese stock markets. It particularly examines the time-varying stock market co-movement between the United States and China at market level, as well as at sector level, over the period from 3rd January 2017 to 23rd January 2020. The ‘event study’ analysis is employed to investigate the effect of US-China trade disputes news on co-movement dynamics, and the news announcement effects before and after the official start of the US-China Trade War (regarded as 6th July 2018) are examined separately in light of this phenomenon. We also identify structural breaks and spillover patterns of cross-market co-movements during different phases. The results indicate that co-movements amongst mainland China, Hong Kong and US stock markets are positively affected by news releases and, after 6th July 2018, are enhanced significantly. More precisely, there is also empirical evidence of positive announcement effects in stock market co-movements between the US and mainland China in specific sectors (particularly, Industrials and Information Technology). For international investors, this evidence suggests that the US-China Trade War has reduced the benefit of portfolio diversification in managing risk.

Keywords: US-China trade war; Stock market co-movement; Event study; Announcement effect; Spillover (search for similar items in EconPapers)
JEL-codes: F36 G14 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921000982

DOI: 10.1016/j.ribaf.2021.101477

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