If Worst Comes to Worst: Co-Movement of Global Stock Markets in the US-China Trade War

14 Pages Posted: 17 Oct 2019 Last revised: 29 Oct 2019

See all articles by Toan Luu Duc Huynh

Toan Luu Duc Huynh

University of Economics Ho Chi Minh City; WHU - Otto Beisheim School of Management

Tobias Burggraf

WHU - Otto Beisheim School of Management

Date Written: October 8, 2019

Abstract

This paper investigates the co-movement characteristics of global stock markets in the context of the US-China trade war. By applying a set of different trivariate Copulas, our results suggest that markets co-move symmetrically in the pre-trade war period, but exhibit negative downside movements and heavy tails during the trade war. Furthermore, we find evidence for left-tail dependency structures during that period. Most importantly, this study finds that the trade war poses a systematic risk on global markets, which potentially can trigger simultaneous market downside trends. Our results are robust across different European equity market indices.

Keywords: Trade war, Co-movement, Copulas, market reaction

JEL Classification: B17, C46, G15

Suggested Citation

Huynh, Toan Luu Duc and Burggraf, Tobias, If Worst Comes to Worst: Co-Movement of Global Stock Markets in the US-China Trade War (October 8, 2019). Available at SSRN: https://ssrn.com/abstract=3466245 or http://dx.doi.org/10.2139/ssrn.3466245

Toan Luu Duc Huynh (Contact Author)

University of Economics Ho Chi Minh City ( email )

59C Nguyen D├Čnh Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Tobias Burggraf

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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