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
Date Written: October 8, 2019
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: Suggested Citation