US-China trade war and its impacts on stock markets

Abstract

This thesis explores the effects of the trade war on the stock markets in the US and China mainland. To understand the general situation of the trade, policies were listed in this thesis. Meanwhile, the movements of representative stock indices, which used to measure the performance of the two stock markets in this period, were analyzed using standard deviation and correlation test. This thesis quantifies policy change with the trade policy uncertainty indices and uses regression tests to investigate their effects on the stock indices. This thesis also exploits whether certain announcements can influence the stock markets in the short run, using the difference in means test. The results illustrate that trade policy uncertainty had positive effects on the stock market of the US, while influenced that of China inversely. Besides, the stock market in China mainland was affected more than the US one to some extent. Last but not least, the sudden trade war policy announcements have significant influences on indices price in the short run. The results also give evidence for investors to adjust the asset allocation. Investors in these two stock markets need to pay close attention to relative policy changes.