Extreme risk spillover in the equity markets: Evidence from the U.S.–China trade war

This study examines the spillovers of the extreme downside and upside risks from the U.S./China equity market to their mutual trading partners’ equity markets in the context of the U.S.-China trade war. The results show that downside and upside risk spillovers from the U.S./China to these countries are significant. The downside spillovers are more substantial than the upside spillovers. Moreover, the risk spillover from the U.S. (China) is higher in magnitude than from China (U.S.) for a group of developed (emerging) countries. After the start of the U.S.–China trade dispute, the extreme risk spillovers from the U.S. and China become significantly stronger for South Korea and significantly lower for Brazil. The difference in risk spillovers from the U.S. and China changes significantly in Taiwan, Brazil, and India during the trade war period. Overall, the U.S.–China trade war generates varying risk spillovers from the U.S./China to the equity markets of its major trading partners.