The Effect of China-U.S. Trade Dispute on Chinese Stock Market: New Evidence from the Event Study Analysis

  • Fuzhong Chen School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China
  • Di Yu School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China
Keywords: trade dispute, the effect of tariffs, Chinese stock market, event study analysis, cumulative average abnormal returns

Abstract

In 2018, the China-U.S. trade dispute started, which brings heterogeneous impacts on the global economy. The purpose of this paper is to examine the effects of tariffs targeting Chinese exporting commodities imposed by the U.S. on the Chinese stock market by utilizing the event study analysis. 10 industries' stock returns between Jan. 3rd , 2017, and Apr. 3rd , 2020 were selected as the research objectives from the WIND database, according to the Chinese Shen Wan's classification standard. Results based on event study analysis show that: First, the China-U.S. trade dispute causes significant fluctuations to Chinese stock returns. Second, the impacts of the trade dispute are mainly negative, showing by the negative cumulative average abnormal returns in the export-oriented sectors when they are encountered with new tariffs imposed by the United States. However, the effects can also be positive because of the various situations of targeted industries, and the defensive measures taken by China. Third, the trade dispute also affects investors' views on the macro economy, in which the impact on the real economy can be transferred to other non-export-oriented industries, such as the banking sector. This study provides empirical evidence for China's policymakers to take measures in strengthening the independence of innovation, protecting intellectual property rights. Investors also need to equip themselves with more financial knowledge.

Published
2020-11-05
How to Cite
Fuzhong Chen, & Di Yu. (2020). The Effect of China-U.S. Trade Dispute on Chinese Stock Market: New Evidence from the Event Study Analysis. Regional Economic Development Research, 1(2), 105-117. https://doi.org/10.37256/redr.122020561