A0253
Title: Effect of the U.S.-China trade war on stock markets: A financial contagion perspective
Authors: Minseog Oh - KAIST (Korea, South) [presenting]
Donggyu Kim - KAIST (Korea, South)
Abstract: The effect of the U.S.-China trade war on stock markets is investigated from a financial contagion perspective, based on high-frequency financial data. Specifically, to account for risk contagion between the U.S. and China stock markets, we develop a novel jump-diffusion process. For example, we consider three channels for volatility contagion-such as integrated volatility, positive jump variation, and negative jump variation-and each stock market is able to affect the other stock market as an overnight risk factor. We develop a quasi-maximum likelihood estimator for model parameters and establish its asymptotic properties. Furthermore, to identify contagion channels and test the existence of a structural break, we propose hypothesis test procedures. From the empirical study, we find evidence of financial contagion from the U.S. to China and evidence that the risk contagion channel has changed from integrated volatility to negative jump variation.
