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Trade wars and asset prices

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  • Carlomagno, Guillermo
  • Albagli, Elías

Abstract

We study the effects of the trade war between the US and China since 2018 on international asset markets, including bonds, stocks, and exchange rates for a sample of 36 developed and emerging economies. Our main methodology relies on event studies, based on a daily indicator of trade-war news. We find that the typical negative news significantly and persistently compresses 10-y yields in the US and other developed economies, leading to cumulative effects close to −67 bp and −32 bp over the sample period, respectively. These episodes also significantly reduce stock markets in the US and other developed economies, with cumulative effects close to 23 and 14% for developed and emerging economies, respectively. For emerging countries, we also find significant currency depreciations against the USD. These results are confirmed with an alternative identification based on time-varying volatility. Given the relatively larger impacts on long-term yields, as well as the differential effects across developed and emerging markets, we conclude that the dominant channel behind the effects are increases in global risk aversion, as opposed to worsening perspectives about global growth prospects.

Suggested Citation

  • Carlomagno, Guillermo & Albagli, Elías, 2022. "Trade wars and asset prices," Journal of International Money and Finance, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:jimfin:v:124:y:2022:i:c:s0261560622000341
    DOI: 10.1016/j.jimonfin.2022.102631
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    Cited by:

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    More about this item

    Keywords

    Trade war; Asset markets; Event studies; Conditional heteroskedasticity;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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