The hedging role of US and Chinese stock markets against economic and trade policy uncertainty: lessons from recent turbulences

Sutap Kumar Ghosh, Md. Naiem Hossain and Hosneara Khatun

China Finance Review International, 2022, vol. 13, issue 3, 444-470

Abstract: Purpose - This study analyses the impact of economic and trade policy uncertainty on US and Chinese stock markets. Also, this study examines the hedge and safe-haven properties of US and China stocks against both US and Chinese economic and trade policy uncertainty. Design/methodology/approach - To achieve the desired goals, the authors employ Dynamic Conditional Correlation through Glostenet al.(1993) model based on the Generalized Autoregressive Conditional Heteroscedasticity (DCC-GJR-GARCH (1, 1)) and Quantile cross-spectral (QS) models. The study uses monthly observations spanning from March 2010 to June 2022. Findings - This study evidence that the economic and trade policy uncertainty between USA and China is extremely sensitive and has high volatility clustering effects on DJChina88 and DJUS, respectively. Conversely, against the Chinese economic and trade policy uncertainty, the US stock market indexes show both hedging properties across the period and safe-haven during COVID-19 and Russia–Ukraine crises. In contrast, among the Chinese stock markets, only DJShenzhen and DJShanghai stock indices might provide strong hedging and safe-haven properties against the US economic and trade policy uncertainties; however, DJShenzhen (DJChina88) stock shows weak hedge and safe-haven properties (hedging benefits) against Chinese trade policy uncertainty (CTPU) (Chinese economic policy uncertainty [CEPU]). Practical implications - The findings have significant implications for investors, portfolio managers and regulators in hedging and making proper decisions under uncertain circumstances. Originality/value - The study extends the literature on stock market performance to cover the economic and trade policy uncertainty by providing novel evidence during the recent COVID-19 and Russia–Ukraine invasion.

Keywords: Policy uncertainty; Stock markets; Hedging; COVID-19; DCC-GJR-GARCH (1; 1); Quantile cross-spectral; F3; G1; G11 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:cfripp:cfri-08-2022-0154

DOI: 10.1108/CFRI-08-2022-0154

Access Statistics for this article

China Finance Review International is currently edited by Professor Chongfeng Wu and Professor Haitao Li

More articles in China Finance Review International from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().