The Effects of the US-China Trade Dispute on the Asymmetric Volatility in the Stock Market: An Investigation of EGARCH Model Analysis

摘要

This study empirically analyzes the influence of the trade disputes between China and the United States on the stock markets of the host countries. From 2000 to 2019, using 20 years of daily return series of S&P 500 and SSE composite stock price index data, after separating in the pre- and the post-trade dispute, we dynamically analyze the volatility clustering, asymmetric volatility, etc. by using time-variable volatility models such as EGARCH and TGARCH models. The main results are as follows. Firstly, in each of the U.S. and Chinese stock markets, volatility clustering was observed during the pre and the post-trade dispute, but its intensity increased in the U.S. market and conversely decreased in the Chinese market in the post-trade dispute, suggesting that the impact of the U.S. market to Chinese market is more sensitive. Secondly, after the trade dispute, the variability and persistence of the U.S market has decreased, while it has increased in the Chinese market. Thirdly, in the post-trade dispute, asymmetric volatility in the Chinese stock market is not noted, and the degree of asymmetric volatility that existed in the pre-trade dispute is weaker than the U.S. market. It confirms that in the Chinese market, investors are not sensitive to the increase in debt ratios and the increase in risk premium caused by the fall in stock prices during the crisis. Fourthly, during the trade dispute period, the possibility of adverse asymmetric volatility (ADV) in the Chinese stock market is still present, suggesting that Chinese investors respond more sensitively to good news than bad news. Thus, the speculative tendency, which is more sensitive to positive factors than negative ones, is found to likely increase in the Chinese market in the trade dispute period.To summarize the above results, in the case of market turbulence such as trade disputes, active intervention from government is able to effectively stabilize the market. Unlike developed stock markets, Chinese investors find the possibility that the contrarian strategies are more effective than “momentum” strategies.