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The Spillover Effects of China-US Trade Friction on China's Financial Markets

【Authors】
FANG Yi, HE Wenjia & JING Zhongbo
【WorkUnit】
Central University of Finance and Economics, 100081.
【Abstract】

This paper quantitatively analyzes the spillover effects of China-US trade friction on China's stock, bond and foreign exchange markets and the spillovers across these markets based on the event analysis.Empirical results are as follows. (1) The trade friction will quickly increase the risks of all three financial markets, and different markets have different reactions based on the rules of the statistical significance, the economic significance and the duration. In addition, there is a “market rotation” among the risks of three markets. (2) The trade friction has significant and lasting impacts on the cross-market risk spillovers via the channels of common risk exposure and portfolio reallocations. The directions of spillovers indicate the feature of flight-to-quality. (3) According to the order of time sequence and the magnitude in which trade frictions incur significant spillover effects to three financial markets, China's financial markets can be divided into three risk zones, which will be useful to maintain financial stability.

 

JEL:E44, G21, G28

【KeyWords】
China-US Trade Friction, Financial Market Risk, Cross-Market Risk Contagion, Event Analysis