Date of Award

5-6-2020

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Rodrigo Schneider

Abstract

This research explores the impact of the U.S. - China trade war, which began in January 2018, on the stock market of both countries. Considering President Trump’s tweets as a source of trade-related information for U.S. investors, this paper investigates how the daily returns and volatilities of major stock indices change with the appearance of official news events as well as the U.S. president’s tweets. To account for the potential diverse effects of tariffs on different sectors, such as benefiting some industries while harming others, this study also examines the sector-specific indices. The empirical results suggest different reactions of the U.S. and China stock markets: for the presence of negative events related to tariffs and trade disputes, the U.S. stock indices’ returns decrease, but the Chinese stock indices do not change significantly. Nevertheless, for positive events related to trade deals or negotiations, both countries’ stock markets have increasing daily returns. For sector-specific indices, the results show that no sector manages to benefit from the trade war as a whole. Overall, the study demonstrates the undesirable negative impact of the trade war on the stock markets, suggesting that the two countries should strive to reach the trade deal soon to mitigate the influence.

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