The Financial Costs of the U.S.-China Trade Tensions: Evidence from East Asian Stock Markets

Abstract

This paper examines the impacts of U.S.-China trade tensions via the lens of East Asian stock markets. Studying 10 indices of the main East Asian stock markets, it finds that announcements of "trade war" escalation translated into 50 to 60 percent of the total declines in two major Chinese stock markets over the first eight months of 2018. In other words, in the absence of the "trade war" Asian stocks would have experienced half the decline, or they would have registered gains.

Stock Market Synchronization: The Role of Geopolitical Risk

“…Consequently, the Russian stock market experienced a lower degree of connectedness with the rest of the global stock market (Nivorozhkin and Castagneto-Gissey 2016). The relevance of geopolitical risk was manifested during the China and US trade war in 2018, which contributed to a decline in the two largest Chinese stock markets (De Nicola et al 2019). Such anecdotal evidence further incites the urgency to measure the response of stock market synchronization to geopolitical risk.…”